‘Centre was in talks with RBI on note ban from Feb.’

Jaitley tells Rajya Sabha that the Centre and senior officials of the Reserve Bank of India had held consultations on the issue

RBI was well prepared and there was no shortage of cash after the announcement, says Mr. Jaitley.

The decision to demonetise ₹500 and ₹1,000 notes was recommended by the Reserve Bank of India to the Centre on November 8 and was then conveyed to the Council of Ministers which took the final decision to go ahead with the move, Finance Minister Arun Jaitley informed the Rajya Sabha.

According to Mr. Jaitley, the Centre and the senior officials of the central bank had been in consultation since February 2016 on the issue and the RBI had as far back as May approved the design for the new currency notes.

While the Finance Minister said the recommendation was made by the RBI on November 8, written answers provided by the Ministry of Finance say that the government on November 7 requested the RBI Board to deliberate on the issue of demonetisation.

“The Government in a letter dated November 7, 2016 requested RBI to consider cancellation of legal tender character of ₹500 and ₹1,000 denomination with the objective to eliminate black money and to curb the infusion and circulation of fake Indian currency notes,” the written answer stated.

RBI meeting

“The Central Board of the Reserve Bank in its meeting held on November 8, 2016 deliberated in detail a proposal for withdrawal of legal tender status of banknotes in the denomination of ₹500 and ₹1,000… in circulation and after due examination recommended withdrawal of legal tender status of such notes,” the answer added.

The Finance Minister also said that the RBI was well prepared for the move and that there was no shortage of cash following the demonetisation announcement. However, he said that the process of recalibrating the ATMs to be able to handle the new notes took time.

He added that, in the drive to encourage digital payments, the RBI was deciding on what the additional charge on electronic transactions above ₹2,000 should be.

“The formal resolution of the RBI Central Board was passed on the 8th of November and conveyed to the Government whereby the matter went before the Council of Ministers which took the final decision,” Mr. Jaitley said in reply to a question during Question Hour. “But I can also tell the Hon. Member that consultations at a very senior level with the RBI on this issue had started way back in the month of February 2016 itself.”

“The RBI Board in the month of May 2016, as a part of these consultations, had decided to approve the design and taken a decision with regard to the high denominational currency which was required to be printed as a replacement currency itself,” Mr. Jaitley added.

‘Regular meetings’

“Thereafter a series of meetings used to be held periodically at times on a defined date once a week where the seniors in the RBI as also in the Government were in consultation.”

The need for secrecy was such, he said, that these consultations were not put in the public domain.

Mr. Jaitley also said that the formal proposal to consider the matter of demonetisation was sent by the Finance Ministry to the RBI Board. The RBI Board then independently considered it and made its recommendation to the government, he told the assembled Members of Parliament. Mr. Jaitley informed the Upper House of Parliament of the RBI’s decision to reduce the additional charge on debit card transactions of up to ₹1,000 to 0.25% and for transactions up to ₹2,000 to 0.5%.

Currency availability

“The RBI had adequate amount of currency printed in advance in order to facilitate the remonetisation process,” he said. “At no point of time, not for a single day, was the currency inadequate.”

“Because of the reason of maintaining the secrecy, this (ATM recalibration) could not be done before the 8th of November and had necessarily to be done only after the 8th of November. That recalibration process itself took time,” he said.