Indian 500 and 1000 rupee currency

demonetisation
From Wikipedia, the free encyclopedia

Queue at an ATM for 100 rupee notes in Howrah, 8 November 2016.

The demonetisation of 500 and 1000 rupee banknotes is a step taken by the Government of
India in November 2016 to fight corruption and black money issues in the country. Starting
from 9 November 2016 IST, all 500 and 1000 rupee notes ceased to be accepted as a form of
legal tender in India.[1] The announcement was made by the Prime Minister of India in a live
televised address to the nation at 8:15 pm IST[2] the same day.[3] In the announcement, Modi
declared circulation of all 500 and 1000 rupee banknotes (approximately $7.50 and $15 USD
respectively) of the Mahatma Gandhi series as invalid and announced the issuance of 500 and
2000 rupee banknotes (approximately $7.50 and $30 USD respectively) in the new Mahatma
Gandhi series in exchange for the old banknotes.
The demonetisation was done in an effort to stop the counterfeiting of the current banknotes
alleged to be used for funding terrorism and for cracking down on black money in the
country.[4]

Contents

1 History and background

2 Procedure for exchanging old notes
3 Reactions
4 Aftermath
5 Raids
6 References
7 External links

History and background

Previously, similar measures were taken. In January 1946, currency notes of 1000 and 10,000
rupees were withdrawn and new notes of 1000, 5000 and 10,000 rupees were reintroduced in
1954. The Janata Party coalition government had again demonetised notes of 1000, 5000 and
10,000 rupees on 16 January 1978 as a means to curb forgery and black money.[5]
On 28 October 2016, the total currency in circulation in India was 17.77 lakh crore
(US$260 billion). In terms of value, the annual report of Reserve Bank of India of 31 March

2016 stated that total bank notes in circulation valued to 16.42 lakh crore (US$240 billion)
of which nearly 86% (i.e. 14.18 lakh crore (US$210 billion)) was 500 and 1000 rupee notes.
In terms of volume, the report stated that 24% (i.e. 2,203 crore) of the total 9,026.6 crore
banknotes were in circulation.[6]
After the official announcement by Prime Minister Modi, the Governor of the Reserve Bank
of India, Urjit Patel and the Economic Affairs secretary, Shaktikanta Das explained in a press
conference that while the supply of notes of all denomination were increased by 40%
between 2011 and 2016, the 500 and 1000 rupee notes increased by 76% and 109%
respectively in this period owing to counterfeit money. This was then used to fund terrorist
activities against India. As a result the step of eliminating the notes was taken.[7]

Procedure for exchanging old notes

The Reserve Bank of India has laid down a detailed procedure for the exchange of the
demonetized banknotes with new 500 and 2000 banknotes of the Mahatma Gandhi New
Series and 100 banknotes of the preceding Mahatma Gandhi Series. Following are the key
points:

Citizens will have until 30 December 2016 to tender their old banknotes at any office
of the RBI or any bank branch and credit the value into their respective bank
accounts.[1]
Cash withdrawals from bank accounts will be restricted to 10,000 per day and
20,000 per week from 9 November 2016 till 24 November 2016.[1]
For immediate cash needs, the old banknotes of value up to 4000 per person can be
exchanged for the new 500 and 2000 banknotes as well as 100 banknotes over the
counter of bank branches from 10 November 2016 by filling up a requisiton form
along with a valid ID proof.[1]
All ATMs will dispense bank notes of only 50 and 100 rupee denominations.[8]
Banks will provide all cash withdrawal transactions at their ATMs free of cost to their
customers till 30 December 2016. Cash withdrawals from ATMs will be restricted to
2000 per day per card up to 18 November 2016 and the limits will be raised to 4000
per day per card from 19 November 2016.[8]

People queue outside a private bank to deposit and exchange 500 and 1000 currency notes in
Kolkata, 10 November 2016.
However, exceptions were given to petrol pumps, CNG stations, government hospitals, train
and airline booking stations, state-government recognised dairies, ration shops, and
crematoriums to accept the 500 and 1000 rupee notes until 11 November. International
airports would facilitate exchange of notes amounting to total value of 5,000 (US$74) for
foreign tourists and out-bound passengers.[9]
Patel also informed that the decision was made about six months ago and printing of new
currency notes of denomination 500 and 2000 had already been started. This change had
however been kept only in the top members of the government, security agencies and the
central bank.[10]

Reactions

Finance Minister Arun Jaitley said that demonetisation would clean the complete economic
system, increase the size of economy and revenue base. Along with the upcoming Goods and
Services Tax (GST), this demonetisation is "an attempt to change the spending habit and
lifestyle".[11] Jaitley also dispelled rumours of the Rs. 2,000 note having a "micro nano GPS
chip" to enable its tracking through satellite.[12]
The decision was both praised and criticised by economists, other experts, politicians and
common people. Right after the news spread out, a large number of people reacted on social
media sites like Twitter.[13] Several bankers like Arundhati Bhattacharya (Chairperson of
State Bank of India), Chanda Kochhar (MD & CEO of ICICI Bank) and Deepak Parekh
(Chairman of HDFC) appreciated the move that would help curb black money.[14]
Businessmen Anand Mahindra (Mahindra Group), Sajjan Jindal (JSW Group) and Kunal
Bahl (Snapdeal and FreeCharge) welcomed the decision that would also accelerate ecommerce.[14]
However, CM of West Bengal Mamata Banerjee called the new declaration as "drama" and
tweeted "Heartless and ill- conceived blow on the common people and the middle class in the
fake name of anti-corruption".[15] Indian National Congress spokesperson Randeep Surjewala
welcomed the move but showed apprehension on consequences that would follow.[16] A
Public Interest Litigation was filed in Madras High Court by M Seeni Ahamed, General
Secretary of Indian National League, to scrap the decision. The High Court dismissed the PIL
stating that it could not interfere in monetary policies of the government, however it found
the action suitable for country's security and development.[17] Similar PILs have been filed in
the Supreme Court of India.[18]
[19]

Aftermath
In Gujarat, sale of gold increased on 9 November with an increased 20 to 30% premium as
people bought gold in exchange of their unaccounted cash. The Hindu reported that such
transactions have been made back dated. Major highway toll junctions in Gujarat and DelhiMumbai highways also saw long queues as toll plaza operators refused the old banknotes.[20]
Nitin Gadkari, the Minister of Transport, announced suspension of toll collections on all
national highways across India until midnight of 11 November.[21]
The price of gold increased to 40,000 in many places.[22] Queues were observed at ATMs.[23]
Petrol stations were also very crowded.[24]

Raids
Shops have been closed in big markets due to fear of raids by the IT department.[24][25]
Already Hawala Operators are running away and they don't know what to do with such huge
cash.[26]