Fewer security features make currency notes more vulnerable to counterfeiting. In a release on Friday, the central bank said that in Reserve Banks view, 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.
On Wednesday, the central bank had issued an advisory saying it is withdrawing all notes printed before 2005 and asked the public to exchange such notes for newer ones at bank branches. The move has invited ire from various fronts and was viewed as being strategically timed ahead of the general elections.
Also, the instruction that individuals will have to produce proof of identity if they turn in more than 10 currency notes of denominations of R500 and R1,000 has prompted many to infer that the central bank is trying to curb illicit money flow into the formal financial system.
Following this on Thursday, governor Raghuram Rajan clarified that there is no attempt to demonetise the currency notes and the move has nothing to do with the elections.
Further, the RBI has also clarified that only non-customers of banks will have to produce proof of identity while customers can turn in any number of notes. To curb illicit money flow, the RBI will have to announce demonetisation of currency notes and give a deadline beyond which these cease to be legal tender. However in the current case, the central bank has not given such a deadline.
The central bank also reiterated that the notes printed before 2005 will continue to be legal tender.
The RBI assures that it will continue to monitor and review the process of withdrawal of old series notes so that the public is not inconvenienced in any manner, the central bank said.