RBI will withdraw all currency notes printed before 2005 from circulation and has requested the public to exchange such notes at bank branches. Although these notes will remain legal tender, from July onwards, any individual exchanging more than 10 notes of R500 or R1,000 will need to show proof of identity. However, if the individual is already a customer of the bank, the person can exchange any number of notes without providing proof of identity.
Will the RBI move reduce counterfeit notes circulating with the public
Since currency notes printed before 2005 had fewer security features, the incidence of counterfeiting of these notes was said to be high. Therefore, by withdrawing these notes, RBI intends to curb the volume of counterfeit notes in the system. The pre-2005 notes do not carry the year of printing on the back as the newer notes do, making it easier to identify for the public.
By the end of March 2005, the notes in circulation were 36,984 million pieces, and during 2004-05, total counterfeit notes detected were 181,928 pieces.
However, since RBI has time and again received old notes for shredding, the number of pre-2005 printed notes in circulation could be far less. During 2012-13, 498,252 pieces of counterfeit notes were detected. Data from RBI shows that, by the end of March 2013, currency notes in circulation totalled 73,517 million pieces.
Will this withdrawal reduce the amount of illicit money that finds its way into the formal financial system
The withdrawal of the pre-2005 currency notes requires individuals to give proof of identity if they turn in more than 10 notes of R500 or R1,000 after July 1. However, the individual can turn in any number of notes at a bank branch if she is an existing customer of that bank. But even after July 1, the money can be used to buy goods and services throughout the countrythat is, it will continue to be legal tender. The move is to curb counterfeit notes and not with an intention to impact illicit money flow. The onus of curbing illicit money lies with fiduciary agents and not RBI. The central bank has already tightened KYC norms of banks and the mandated requirement of a PAN card for cash deposits over R50,000 serves the purpose to curb illicit money.
Further, to curb illicit money, RBI will have to announce demonetisation and give a strict deadline after which the currency notes lose their status of legal tender. Currently, the central bank has clarified that these notes will continue to be legal tender and has not mandated a deadline wherein they stop being legal.
Does the withdrawal of pre-2005 currency notes render them as illegal
Starting April, the pre-2005 series of currency notes will no longer be reissued by RBI and the central bank has requested every individual to exchange these currency notes at bank branches. The central bank has also clarified that these notes will continue to be legal tender. However, the deadline until which these notes will be considered legal tender has not been specified by the central bank.
What is legal tender and until when would these currency notes be legal
Every banknote issued by RBI of any denomination is a legal tender at any place in India in payment or on account for the amount expressed in the note, and is guaranteed by the central government. In other words, the currency notes are accepted and the holder is guaranteed the value mentioned on the note within the republican limits of the country. However, if a note is found as a fake and note genuine (printed by RBIs printing agencies), or if the note is mutilated beyond recognition, it ceases to be a legal tender.
If any individual is detected with exchanging counterfeit notes, what is the penal action
Any individual possessing counterfeit bank notes is punishable under the Indian Penal Code and the punishment ranges from fines to imprisonment depending upon the seriousness of the offence.
What is the frequency with which RBI prints new currency notes every year
RBI decides the volume and value of banknotes to be printed each year. The quantum of banknotes that needs to be printed broadly depends on the requirement for meeting the demand for banknotes due to inflation, GDP growth, replacement of soiled banknotes and reserve stock requirements. The demand for banknotes is estimated on the basis of the growth rate of the economy, the replacement demand and the reserve stock requirements by using statistical models/techniques.
Why does RBI withdraw certain currency notes
As a routine, RBI follows a clean note policy wherein it encourages the public to exchange mutilated notes for freshly printed ones. Another rationale is to reduce printing of counterfeit or fake notes. The security features of the notes printed before 2005 were not enough to check counterfeiting. Therefore, the central bank has decided on withdrawing them. For notes printed after 2005, 6-8 additional security features were added.