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RBI rejected Modi govt’s these 3 key arguments on demonetisation; here’s what minutes of meeting reveal

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Published: March 12, 2019 3:58:14 PM

Even as Reserve Bank of India (RBI) approved Modi government’s decision to demonetise Rs 500 and Rs 1,000 notes in 2016, it raised concerns on its three key arguments for noteban, RBI’s minutes of the meeting revealed.

The Central Bank rejected the suggestions mainly around noteban’s likely effect on curbing black money and counterfeit notes.

Even as Reserve Bank of India (RBI) approved Modi government’s decision to demonetise Rs 500 and Rs 1,000 notes in 2016, it raised concerns on its three key arguments for noteban,  RBI’s minutes of the meeting revealed. The Central Bank rejected the suggestions mainly around noteban’s likely effect on curbing black money and counterfeit notes.

The letter by the finance ministry placed before the RBI board argued that the economy grew by 30 per cent between FY12 and FY16, the growth in bank note denominations — Rs 500 and Rs 1,000 — is far higher  i.e. 36 per cent and 109 per cent respectively).

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RBI replied: “The growth rate of economy mentioned is the real rate while the growth in currency in circulation is nominal. Adjusted for inflation, the difference may not be so stark. Hence, this argument does not adequately support the recommendation…”.

Similarly, the justification about demonetisation helping in tackling black money and corruption was rejected by the RBI saying: “Most of the black money is held not in the form of cash but in the form of real sector assets such as gold or real-estate and… this move would not have a material impact on those assets.”

“While any incidence of counterfeiting is a concern, Rs 400 crore as a percentage of the total quantum of currency in circulation in the country is not very significant”, RBI said on the argument that noteban would help in curbing black money.

The minutes were published by RTI activist Venkatesh Nayak on the website of Commonwealth Human Rights Initiative.

The minutes of the board meeting, which approved the government’s request for noteban, recorded the presence of then RBI governor Urjit Patel and the then economic affairs secretary Shaktikanta Das.

The then financial services secretary Anjuli Chib Duggal, and RBI deputy governors R. Gandhi and SS Mundra were others at the board meeting.

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