What former RBI top officials should be telling us about the demonetisation drive…

One has been getting some bit of coverage from RBI top officials on the recent demonetisation drive.

  • Link 1 (Dr. Subbarao) 
  • Link 2 (Ms. Usha Thorat)
  • Link 3 (Ms. Thorat and Dr. Rangarajan) 
  • Link 4 (summary of previous Governor’s views) 
  • Link 5 (Dr KC Chakrabarty).

Most of them have been around the aftermath of demonetisation and what will happen to RBI Balance sheet and so on. Now we don’t really know what will happen to GDP, inflation etc as that only time will tell.

What we however know is the process via which currency has been demonetised. It is amazing to read how RBI Board was used this time in with not even 50% board membership. How do the former top officials react to this case of RBI Governance (can we call it governance)? Does RBI Act allow such large scale demonetisation given some questions raised by legal experts.

Further, it is interesting that barring Dr KC Chakrabarty, none of the officials have expressed whether demonetisation was suggested in their time and what were their views on the move?

Dr Chakrabarty in a Q&A clearly said it was advised during his tenure:

You were the deputy governor of RBI when the UPA-II government was at the centre. Was there any such proposal from the government during your tenure?

Yes, it had come from the UPA government. After examining the proposal, we had said that this should not be done. The proposal never went to the board level.

Was it a formal proposal? What was the reason for declining it?

Whether it came officially or over telephone, is not the issue. But I definitely remember it had come. We said ‘no’ because it does not serve any purpose… the cost is high and the benefit is less.

It has already impacted the banking system. For the next couple of months, banks will only concentrate on exchange of notes, no business can happen.

However, others serving around his time have hardly spoken about the issue. Some might say we can’t trust just one person. But then let others reject what he has said.

The questions that need to be answered are: Would they have agreed to such a drive given how understaffed RBI Board has been all these years? Was demonetisation advised during their times?

This is something which only RBI top staff can help people understand given their experience at the job. What we have instead is analysis on economy/RBI Balance sheet which is anyone’s guess. We also have many analysts for the economy job but very few who understand the working and legality around these issues.

 The answers to the tough legal and governance issues will throw much more light and clarity on the matter. The ones on economy will eventually show up and who knows we all could be wrong…


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