Days after RBI first announced that currency notes of 500 and 1,000 denominations issued prior to 2005 would be withdrawn by the end of this fiscal, it has emerged that the plan was in the works since May 2013 when the Finance Ministry wrote to the central bank asking it to withdraw “older series of banknotes in a time-bound manner”—this came after data revealed that as much as 70% of “discovered” counterfeit currency consists of higher denomination notes of 500 and 1,000.
The currency issued after 2005 is safe for the moment, but in the event of the enhanced security features also falling prey to counterfeiters, RBI and the government would step in once again. Officials involved in the process say “more action would be taken to phase out any note series based on reviews and data regarding counterfeiting”.
The announcement was greeted with a bit of shock and some scepticism as to what it intended to achieve. After all, the central bank said that all banknotes issued prior to 2005 would be withdrawn from circulation after March 31 this year. From April 1 onwards, all banknotes would have to taken to banks and exchanged for new notes issued after 2005. There was no data that was issued by RBI as to the total value of the banknotes that were to be impacted by the move. The announcement is reported to have led to a secondary market for discounted banknotes issued prior to 2005. Reports suggest people have started approaching jewellers and real estate brokers to exchange large sums of pre-2005 cash.
It was perhaps this nervousness that led RBI to clarify the matter two days later when it said that the rationale behind the move was to remove these banknotes from the market as they “have fewer security features compared to banknotes printed after 2005”. The statement helpfully added that “the volume of the banknotes printed prior to 2005 today, still in circulation, is not significant enough to impact the general public in a large way”.
But given that the move had generated some adverse comment and disquiet in the political class, including the BJP, RBI diluted the measure to some extent by announcing that the process of exchanging notes at bank branches could be carried out “at convenience”. It also said that the old series banknotes can be exchanged even after July 1, 2014 at the bank branches where people hold