Soiled Rs 2,000 and new Rs 500 notes cannot be exchanged as rules have not been revised…

There is so much to monetary economics than just interest rate cuts. Infact, central bank’s currency management which touches lives of almost all people, is so important to understand. There are multiple laws which have been framed to make this function requiring understanding of monetary laws of the country.

For instance, this news points how people cannot exchange soiled notes of Rs 2000 and new Rs 500 denominations. Why? As the rules have not been updated since demonetisation:

Every Indian currency note prominently bears a promissary message from the Reserve Bank of India Governor, which states: “I promise to pay the bearer the sum of (the respective currency denomination value).”

The spirit of that promise extends to the exchange of soiled notes as well. The Reserve Bank of India Act, 1934 (2 of 1934) stipulates that the exchange of soiled notes is a “duty that the banking system as a whole owes to the public.”

But in what is being seen as a violation of that promissory clause, the RBI is not honouring its promise of the exchange of soiled notes of ₹2,000 and ₹500 denomination even 14 months after they were introduced in November 2016 in the wake of the demonetisation initiative.

The RBI has not framed the Note Refund Rules (NRR) for the new currency notes till date under the Reserve Bank of India (Note Refund) Rules, 2009, which were updated in July 2016, months prior to the demonetisation in November 2016.

There is a seperate rulebook called  “Reserve Bank of India (Note Refund) Rules, 2009which lays the rules for soiled/torn note exchange. It says:

A. Provisions in the Reserve Bank of India Act, 1934:

Section 28: Notwithstanding anything contained in any enactment or rule of law to the contrary, no person shall of right be entitled to recover from the Central Government or the Bank, the value of any lost, stolen, mutilated or imperfect currency note, provided that the Bank may, with the previous sanction of the Central Government, prescribe the circumstances in and the conditions and limitations subject to which the value of such currency notes or bank notes may be refunded as of grace and the rules made under this proviso shall be laid on the table of Parliament.

Section 58(1): The Central Board may, with the previous sanction of the Central Government, by notification in the Official Gazette, make regulations consistent with this Act to provide for all matters for which provision is necessary or convenient for the purpose of giving effect to the provisions of this Act.

Section 58 (2): In particular and without prejudice to the generality of the foregoing provisions, such regulations may provide for all or any of the following matters, viz.-

(a) ……….
(b) ……….
(c) ……….
……………..
(q) the circumstances in which, and the conditions and limitations subject to which the value of any lost, stolen, mutilated or imperfect currency note of the Government of India or bank note may be refunded.

B. Note Refund Rules

In exercise of the powers conferred by the proviso to section 28, read with clause (q) of the sub-section (1) and (2) of section 58, of the Reserve Bank of India Act, 1934 (2 of 1934) and in supersession of the Reserve Bank of India (Notes Refund) Rules, 1975, except as respect things done or omitted to be done before such supersession, the Central Board with the previous sanction of the Central Government, hereby makes the following rules for specifying the circumstances in, and the conditions and limitations subject to which, the value of lost, stolen, mutilated or imperfect note may be refunded as a matter of grace…..

It has definitions of different types of spoiled notes:

(f) ‘;imperfect note’; means any note, which is wholly or partially, obliterated, shrunk, washed, altered or indecipherable but does not include a mutilated note;

(g) ‘;mutilated note’; means a note of which a portion is missing or which is composed of more than two pieces;

(k) ‘;soiled note:’; means a note which, has become dirty due to usage and also includes a two piece note pasted together wherein both the pieces presented belong to the same note, and form the entire note.

Then there is discussion on what notes can be exchanged and under what conditions. For instance, imperfect notes will be paid in full. Mutiated notes, the conditions are different for notes in denomination of Rs 1 to Rs 20 and Rs 50 to Rs 1000. It  is actually ironic that the old Rs 500 and Rs 1000 notes have demonetised but we still have rules for their exchange. Read the Rules for more details.

So much to learn and figure..

 

 

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