Okayed note ban to check fake money: RBI

The Reserve Bank of India (RBI) accepted the government’s proposal to recall ₹500 and ₹1000 notes last November because it was getting “increasingly difficult” to identify genuine notes from the fake ones, the Central bank has informed a parliamentary panel.

The demonetization decision, announced by Prime Minister Narendra Modi in a televised address to the nation ion November 8, shook up the nation as millions had to stand in queues for hours outside ATM vending machines that were often depleted of cash.

In a note to the parliamentary standing committee on finance recently, the Central bank quoted the government as stating in its reference that counterfeit notes were being used for financing activities such as drug trafficking and terrorism and withdrawal of high-value notes could be a solution to it.

“RBI, on its part, found that counterfeit notes of ₹500 and ₹1000 denominations have been largely in circulation and it was becoming increasingly difficult to identify genuine bank notes from the fake ones. RBI saw an opportunity to put an end to the menace of counterfeit notes, particularly when the introduction of new design notes was in the offing,” the RBI told the parliamentary panel.

While securing the bank notes against counterfeiting was cited as the objective of the withdrawal of 17,165 million pieces of ₹500 and 6,858 million pieces of ₹1000 notes—valued at ₹15.44 lakh crore—there was no official estimation of the fake notes in circulation. “Estimating counterfeit notes in the hands of the public is a difficult proposition. However, a study conducted by Indian Statistical Institute, Kolkata, on statistical estimation of counterfeit notes indicated that FICN in circulation was approximately Rs 400 crore and around Rs 70 crore was being pumped into the system annually,” the RBI said.

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