The recent RTI request from Indian central bank revealed that the central bank had 2473.2 million pieces of Rs 2000 notes worth Rs 4.94 lakh crore. The new 500 Rs note value was zero as they were not yet in print.
This led to the criticism that the central bank could just replace 24.1% of total currency which had ceased to be legal tender. This blog also argued how there are differences in currency figures of the central bank, a puzzle which remains unresolved.
However, there is another issue which has cropped up due to this RTI.
Section 24 of Indian Central Bank says:
24. Denominations of notes.
(1) Subject to the provisions of sub-section (2), bank notes shall be of the denominational values of two rupees, five rupees, ten rupees, twenty rupees, fifty rupees, one hundred rupees, five hundred rupees, one thousand rupees, five thousand rupees and ten thousand rupees or of such other denominational values, not exceeding ten thousand rupees, as the Central Government may, on the recommendation of the Central Board, specify in this behalf.
(2) The Central Government may, on the recommendation of the Central Board, direct the non-issue or the discontinuance of issue of bank notes of such denominational values as it may specify in this behalf.]
So the central bank can only print notes in ten denominations: 2, 5, 10, 20, 50, 100, 500, 1000, 5000 amd 10,000.
As Rs 2000 was a new denomination, the nod for this should have gone from Board to the Government.
So on the night of 8 Nov 2016, the Government declared Rs 2000 note denomination in the Gazette:
In exercise of the powers conferred by sub-section (2) of section 24 of the Reserve Bank of India Act, 1934 (2 of 1934) and on the recommendations of the Central Board of Directors of the Reserve Bank of India, the Central Government hereby specifies the denomination of bank notes of the value of two thousand rupees.
This legal aspect has not been discussed at all with most attention on Board’s role in withdrawal of Rs 500 and Rs 1000.
Now, this is where the new puzzle enters.
How is it that the there were 2473.2 million pieces of Rs 2000 notes worth Rs 4.94 lakh crore on the 8 Nov 2016 itself? Ideally, first the Board should have ratified and then Government clearing the proposal. And then only central bank could print notes.
Assuming the Board gave approval in the late evening, it is highly unlikely that so many notes could have been printed just in a few hours. Ideally, there should have been no Rs 2000 notes or at most negligible amounts on night of 8 Nov 2016 There could be as many new Rs 500 notes as their denomination is already there in RBI Act.
So the problem viewed from this lens becomes just the opposite. It wasn’t a case of having less currency notes but plenty of them.
The more you dig into all this for answers, one keeps actually getting more questions….