The withdrawal of INR 2,000 notes by the Reserve Bank of India (RBI) and the subsequent exchange window until September 30 have raised concerns about the potential for black money holders to launder their ill-gotten wealth, similar to what occurred during the previous demonetisation seven years ago. Critics argue that this move by the RBI presents an even greater opportunity for black money holders than the earlier demonetisation, which they believe set the country and its economy back by up to a decade. While Prime Minister Modi had portrayed demonetisation as a surgical strike against black money, the outcome fell short of expectations. Allegations even surfaced suggesting that the exercise facilitated the conversion of black money for personal gain. According to the RBI, 99.3 per cent of the invalidated INR 500 and INR 1,000 notes were returned to the banking system, indicating that a mere fraction of the currency was left outside the formal financial system. Despite the government’s claims of implementing safeguards against black money conversion and its promises to pursue transaction trials, little progress was made. Only a few isolated search and seizure operations took place, resulting in the seizure of relatively small amounts of unaccounted cash.
During the demonetisation currency exchange programme, various measures were put in place to curb bulk conversions and limit transactions. However, these measures proved ineffective, causing inconvenience to individuals who were unable to access their hard-earned money for legitimate purposes. The current RBI arrangement allowing for the exchange of up to ten INR 2,000 notes per transaction, without requiring a bank account link, provides an even more convenient avenue for multiple exchanges and potential black money conversion. The reasons cited by the RBI for withdrawing the INR 2,000 notes appear dubious to critics. The central bank claims that the measure aligns with the clean note policy, aimed at providing the public with good-quality currency notes and coins with enhanced security features while removing soiled notes from circulation. The RBI further states that most of the INR 2,000 denomination notes in circulation were printed before March 2017 and have reached the end of their estimated lifespan. Additionally, it argues that this denomination is no longer commonly used for transactions, and there are sufficient stocks of other denominations to meet currency requirements.
However, these explanations fail to address why the pre-2005 notes, which lack the updated security features introduced later, continue to be legal tender and remain in circulation, particularly in the case of low-denomination notes widely used by the public. This raises unanswered questions regarding the sudden decision by the RBI. Opposition parties have criticized the RBI’s decision, attributing it to Prime Minister Modi and accusing him of acting hastily without proper consideration. They liken this to a pattern of behaviour, labelling him as a self-styled Vishwaguru (world teacher). Former Finance Minister P Chidambaram even suggested the possibility of the INR 1,000 note, invalidated during the previous demonetisation, making a comeback. Congress leader Kapil Sibal highlighted the contradiction between Modi’s earlier statement that the magnitude of cash in circulation is directly linked to the level of corruption and the significant increase in currency circulation since demonetisation. He pointed out that the currency in circulation currently amounts to 30.18 lakh crore, compared to 17.7 lakh crore in 2016 before the ill-fated demonetisation exercise.
