Contrary to popular belief, it was the government which had “advised” the Reserve Bank to junk Rs 500 and Rs 1,000 notes on November 7 and the board of the central bank the very next day recommended the demonetisation.
In a 7-page note to Parliament’s Department-Related Committee of Finance headed by Congress leader M Veerappa Moily, the RBI stated that the government had on November 7, 2016 “advised” the RBI that to mitigate the triple problems of counterfeiting, terrorist financing and black money, the Central Board of the Reserve Bank may consider withdrawal of the legal tender status of the notes in high denominations of Rs 500 and Rs 1,000.”
RBI’s Central Board met the very next day to “consider the government’s advice” and after “deliberations” decided to “recommend. Then, the Cabinet headed by Prime Minister Narendra Modi on November 8 banned circulation of 500 and 1000 rupee notes.
Some ministers have thus far maintained that the government had only acted on RBI recommendation of demonetisation.
In the note to the panel, the RBI said it had been in the last few years working on introduction of new series of banknotes with improved security features to secure them against counterfeiting.
In parallel, the government had been taking steps to curb black money and combat terrorism.
“There were reports by intelligence and enforcement agencies that availability of high denomination banknotes made it easier for black money hoarders and counterfeited notes in high denominations were being used for terrorist financing,” the RBI said.