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The RBI had removed from its website a transcript it had published of Shri R. Gandhi's statement about the currency disbursed to the public by the RBI. It was later published as a few bullet points with controversial parts removed as an "edited transcript"

The RBI had originally placed the transcript of Shri R. Gandhi and Shri S. S. Mundra, RBI Deputy Governors brief Agencies on Currency Issues on their website. At that time, James Wilson, who has been diligently tracking the numbers of demonetisation had raised questions about the numbers of currency given out.

Subsequently, the transcript in question was removed.

This was verified by me. The statement had been removed. You can check this yourself on the RBI website. A sanitized version of what he said was later put up by the RBI (on the 13th Dec 2016) as an "edited transcript" of Shri R. Gandhi and Shri S. S. Mundra, RBI Deputy Governors brief Agencies on Currency Issues with the controversial part removed (correction: it was a new statement). However, nothing dies on the internet. Producing here the original transcript that the RBI had published and the original url it had been published on. It remains removed. Parts in tialics are emphasized by me - these were the ones highlighted by James Wilson when he commented on the statement.

Transcript of Statement made by Shri R. Gandhi, Deputy Governor

There have been several questions about the decision to withdraw the legal tender status of the ₹ 1000 and the old series of ₹ 500 notes.

The motivations for the decision are to deal with the problem of high quality counterfeit notes in these denominations and unearth black money that may be held in cash. The decision has not been taken in haste but after detailed deliberations. There had to be a high level of secrecy surrounding this decision and the fact is that such a large country was indeed taken by surprise when the decision was announced. The Reserve Bank and the Central Government were conscious of certain immediate difficulties that the public at large could face and all efforts were made to minimise them and mitigate them. The problems of the common persons were at the top of the policy makers’ radar and all dispensations were calibrated to address them without at the same time jeopardising the achievement of the larger policy objectives.

The Reserve Bank and the Central Government run note presses are working to their full capacity and all efforts are being made to reach the notes to every part of the country. In fact during this period (from 10th November 2016 to 5th December 2016), the Reserve Bank has supplied to the public banknotes of various denominations worth ₹ 3.81 trillion.

As regards lower denomination notes of ₹ 100, ₹ 50, ₹ 20 and ₹ 10, the Reserve Bank, over its counters and through bank branches all over the country, has supplied 19.1 billion pieces of denominations in this period. (₹ 100 – 8.5 billion, ₹ 50 – 1.8 billion, ₹ 20 – 3.1 billion and ₹ 10 – 5.7 billion). This is more than what the Reserve Bank had supplied to the public in the whole of last three years.

We reiterate that there is adequate supply of notes and hoarding of notes helps nobody’s cause. We also strongly advocate the public to switch to digital payment modes given that there are several options, there are adequate safeguards and there is an increasing acceptability of this mode of payment by a large number of recipients.

It was originally published on the following url: https://rbi.org.in/Scripts/bs_viewcontent.aspx?Id=3286 and may still be verified against Google's cache while it remains cached. However, I have saved it here now, to ensure that it does not vanish again.

It is extremely concerning that the RBI can simply delete official data released and statements made on whim from their records. If there are inaccuracies or problems, they should be corrected, not sneakily be taken off the records. RBI has already shaken the public's trust in the money and its ability to manage money. It does not bode well if the RBI"s word cannot be trusted either.


There is an abundance of claims by the government both about the virtues of demonetisation as well as the duration of the "inconvenience" people have to go through. Here is my attempt to debunk some of them.

To begin with, there is a slight problem. The objectives of the demonetisation have not been officially and explicitly listed anywhere, it appears, so one must draw them based on the Prime Minister's speech and whatever various people have said would be a "good" result from the demonetisation. These include fighting black money, fake currency notes, reducing corruption, bringing most of the money in the country into the banking system, generating more taxes and improving economy. Other non-stated objectives, widely pointed out of course, would be the ongoing bank bailout using private funds of citizens (recapitalizing, it is called in polite circles) and strangling the financial resources and thus limiting power while contesting elections for political opponents.

Let us look at these one by one.

Fighting black money

There seems to be no consensus on how much black money exactly is in the form of currency notes. An estimated 6% of all illegitimate income recovered has been in the form of currency, which does not appear to be a lot in comparison with the losses to the economy from the shock of the demonetisation. How much has been recovered is unclear. There are several reported instances of notes being confiscated. However how much of it is black money and how much is (or gets explained away as) legitimate income remains to be seen. There are reports of the news of the demonetisation already been leaked to the wealthy well in time and is supported by increased sales of gold before the demonetisation being announced. Additionally, as economists are repeatedly cautioning, black money is a result of the nature of the transaction rather than a quality of the money, so the same notes can be black money or white depending on the legality of the transaction and whether it is declared in taxes.

Supporters of the government, in their attempts to silence all criticism of demonetisation have increasingly taken to demonising cash transactions or the possession of cash itself as black money, which is a dangerous perspective in a country where 95% of the transactions happen in cash. They might as well call India a black money country. This view is incorrect and obfuscates facts. However, there is no shortage of reports of the old notes themselves being traded for a lesser value creating an overnight black market ranging from a single note to crores being laundered through agents. Between the advance warning and the laundering a large amount of the already small percentage of black money is likely to have safely returned to its owners without changing color.

A small percentage of people may declare their money and choose to pay tax on it, but this is not likely to be a large amount given that amounts over 2.5 lakh will be flagged for Income Tax, and those that cannot be explained as legitimate income are likely to incur a 200% fine in addition to the tax on the deposit (though there currently does not appear to be a provision under the law), essentially leaving only 10% with the owner of the money. Another percentage of the black money is likely to be confiscated from suspicious deposits in banks and through raids. Given that the Income Tax Department will have to show that this money is not legitimate income, the percentage of money likely to be confiscated will be small compared with all deposits flagged, if for no reason then for the sheer number of accounts that will be flagged requiring manpower to investigate and process. No doubt mass mailing of notices will happen and is already reported to have started.

However, there appear to be plenty of ways for people to launder money, including big and connected agents close to the government, false sales of gold, purchase of gold, backdated fixed deposits in banks, interest free loans, advance salaries for several months to employees and more. The government itself offered the victims of the Kanpur train tragedy compensation in the old and illegal notes. It is anyone's guess whether these amounts were originally withdrawn as legal notes and swapped with illegal ones before giving the victims, since the notes not being legal tender cannot be legally paid out by the government after demonetisation.

But the biggest blow to claims of black money being hindered by #demonetisation is the abundance of people named as having offshore accounts, notorious for having black money, cronies who have benefited from disproportionate favors from Modi led governments (state before center) and of course the noble denizens of the black money rich Bollywood. If all these people support demonetisation, they are clearly not worried about their black money being in trouble.

Fighting fake currency notes

The new notes introduced have no additional security features. Existing notes are already counterfeited, so it does not seem like demonetisation will prevent fake currency to any large degree. In fact, within days of the new notes being released, there were instances of photocopies of the notes being used to defraud people, including, in one instance by school children. The garish color and relatively flimsy paper of the new 2000 rupee notes make even real notes appear to be dubious in comparison with regular currency notes. How soon or late counterfeiters start producing fake notes is anyone's guess, but there is absolutely nothing to indicate that it won't happen. We certainly seem to have failed in intercepting their distribution, or fake notes would not be a reason to demonetise.

The hasty nature of the demonetisation causing the panic and overburdening the banks has not allowed banks to adequately examine deposits to catch and refuse fake notes, so existing fake notes are likely to have been knowingly or unknowingly legitimized with government approved real currency through deposits and exchanges.

Reducing corruption

This seems to be mostly fiction, as even in this short duration, a bribe of four lakhs was paid using the new 2,000 rupee notes, that at the time of being caught had not even been released for a week. Reducing corruption cannot be achieved by changing currency. It would require better law enforcement and deterrents. The government machinery being one of the biggest causes of corruption in the country on every level, the government making a claim of reducing corruption with the simple changing of notes sounds mostly like the fox claiming to provide security for the poultry. Indeed in recent days, we have seen allegations backed by documents that implicate the Prime Minister himself in receiving over 55 crores from the Sahara group when he was the Chief Minister of Gujarat.

Another set of serious allegations come from several quarters, notably a BJP MLA himself, indicating that businessmen close to the ruling party had advance notice of the demonetisation and had already cleared their black money. A third allegation is that people close to the president of BJP, Amit Shah himself are exchanging large sums of black money for a fat commission. This is by Yatin Oza, a former BJP MLA who also claims to have videos backing his accusation as well as makes some realistic challenges about the richest people not featuring among those with large deposits of money into banks. Large quantities of 2,000 rupee notes seen with various people support these accusations, as no one can legally get a bundle of 2,000 rupee notes at this point due to limitations on withdrawal. None of these allegations have so far been denied by the Prime Minster or Amit Shah.

While the country lines up for access to its own cash, a large number of loans by high profile defaulters have been written off. A green fine worth 200 crore levied on Adani has been waived. BJP MLA from Rohtak has publicly reassured black money owners that they need not worry and that Haryana Chief Minister Khattar and Modi were with them. And all this is just within the last few days without needing any extensive searches through history. It is unclear why corruption would reduce under a leadership like this.

Routing most money through the banking system

How much money remains in the banking system is a matter of debate once the cash demonetised is fully replaced. Opinions are split on this. Right now people have no choice, since they aren't allowed to withdraw much cash, and banks are often even failing to provide the allowed limits of cash given the severe cash crunch that is likely to last for 4 - 6 months by most estimates. When they do have choice, it is quite possible that a lot of the cash will be withdrawn right back out. Also, given the availability of the 2,000 rupee notes and their relatively low utility for transactions, the only purpose they could realistically be used in any quantity appears to be hoarding. Even while limited cash withdrawals are allowed, there have been several instances of bundles of 2,000 rupees being seen with people including office bearers of the BJP as well as being used to pay bribes. The instances described in the black money laundering also would remain outside the banking system. So it is entirely possible that while the country struggles for cash, a lot of the illegitimate money may still remain out of the system, merely converted to new notes.

In the meanwhile, there seems to be some evidence for the misuse of Jan Dhan accounts (and indeed it could be done with other accounts too) for parking funds. So money entering the banking system may not necessarily be in a manner desired. My suspicion is also that if there are corrupt bank employees, money could be deposited into the bank accounts of people who aren't even aware that their account is being used for laundering. Such money could probably be recovered by forging signatures on withdrawal slips or misuse of debit cards if the person whose account is misused is known to the launderer and trusts them. There seems to be evidence of this happening as well. Such money would fly right out of the banking system once scrutiny was reduced and if caught, would implicate a complete innocent.

The large number of Jan Dhan accounts lying unused and thus likely to not be monitored by owners are particularly a concern, as they have been suspected to be misused for hawala transations in the past.

Improving collection of taxes

While there will be increased collection of taxes, there are easier ways of doing this with far less loss to the economy. Namely tax reforms, reducing corruption in the tax system and robust enforcement. As of now, about 1% of India's population pays taxes. Given the widespread poverty even with an absurdly low poverty line, how much this number can be realistically expected to rise is anyone's guess. The economic stagnation will also result in fewer taxes being collected because of lost jobs, wages, business losses and devalued goods, even if more people temporarily seem to be on the radar.

Recapitalizing banks

Banks will be recapitalized, loans will be easier to get, interest rates will be lowered... are the expected outcomes from demonetisation. I am no expert on these matters, but given the kind of slowdown the economy is seeing, there will also be reduced deposits, transactions, people digging into savings and businesses collapsing, taking their loans down the drain with them. There is speculation that low interest loans will encourage rebuilding of the economy. No economist of note seems optimistic that it will outstrip the shrinking already set into motion. At best it is put as a possibility in the long run, all things going well. All things don't appear to be going well, given that it will be months before there is any liquidity worth mentioning for businesses. What advantage will evolve in the long run remains to be seen.

Preventing terror financing

This seems to be a popular reason on TV as well as supporters of the government. Modi himself referred to it in his speech. However, going by evidence so far, it does not make sense. Manohar Parrikar hurried to claimsuccess as a halt in stone pelting incidents in Kashmir after demonetisation. This echoes a popular belief within the ranks of the BJP leadership and supporters - that the stone pelting incidents in Kashmir are not spontaneous protests, but well organized and funded with black money. However, this couldn't be farther from the truth. Apart from demonetisation having triggered stone pelting on banks in other parts of the country, the stone pelting in Kashmir had actually reduced by October - as per the J&K Home department data (BJP itself is a part of the J&K government) - well before demonetisation and there have been incidents of stone pelting after the demonetisation as well, though congruent with the slower frequency. Furthermore, Kashmir actually saw the least disruption to daily life and order as a result of demonetisation in the country - this is attributed to the penetration of banking to even remote parts of Kashmir as compared with the rest of the country.

Furthermore, the most counterfeited currency in the world is the dollar and it is also the one most likely to be used by international terrorists for financing, yet demonetisation has not seemed to be a feasible deterrent to any such use if it happens. In comparison, Indian currency has far more limited use - within India and Nepal alone and is even less likely to be used. Several people have pointed out that there is no reason why terrorists wouldn't use online banking and electronic transfers, given that they could be accomplished with fake identities, and being caught for taxes is unlikely to bother those willing to brave the consequences of being caught for terrorism (there may be the potential to dispute this using some jokes on taxes here).

Attack on finances of other political parties

One would expect to see a lot more agitation among political parties if their finances were truly disrupted. And it would have been possible for the BJP to disrupt them quite thoroughly if it had chosen to implement transparency in political funding as well. However, BJP has not done that - quite likely as a result of it being the party with the largest amounts of unaccounted funding in the country at present. Consequently, the other parties are merely opposing the BJP for politics as well as the sheer disastrous nature of the demonetisation. There seem to be no indications of alarm for their own well being.

There have been no instances of black money being found with rival parties or politicans so far. In fact, so far the few instances of large amounts of cash being found as currency notes have all been from the BJP itself. The reason for this likely is that political parties being allowed to accept funds in cash as well as not provide details for donations under 20,000 rupees, it is a routine practice for parties to even show larger amounts of black money as several donations of smaller amounts. Far from being cornered, rival parties would likely be able to comfortably change old notes for new ones, including the potential of laundering black money to white for politicians belonging to the party.

It is unclear what advantage, if any the demonetisation will end up giving BJP in comparison with rivals when measured against the tremendous inconvenience, losses and worse caused to voters.

This post will be updated with links to all the claims and quotes in a couple of days when I get some time. Till then, you could probably google the references up if you need them.


Two nights ago, Modi suddenly appeared on TV and told people that the currency notes for Rs. 500 and Rs. 1000 would not be legal tender after midnight and anyone accepting them did so at their own risk. Then followed information on how how people could deposit them into banks or exchange them for legal 100 rupee notes at banks and post offices. There also followed information on places that could still accept the notes for an additional 72 hours, like government hospitals, petrol pumps, railway counters, etc. Banks wouldn't work the next day and ATMs wouldn't work for the next two days. New currency for Rs. 500 and Rs. 2000 would be issued after three weeks. Don't panic, he said, you will get your money back or something. He has vanished since then, even gone abroad while the country faces chaos and did panic.

What this meant was that the people had absolutely no chance to organize themselves and plan their finances for the near future. People stopped accepting those notes well before midnight. Others rushed to ATMs, which was a bad move, since most ATMs nationwide give only Rs. 500 and Rs. 1000 notes and only a select few dispense Rs. 100s - which was the need of the hour. Those emptied fast.

What ensued was absolute chaos. While stating that petrol pumps and railway counters and such would accept the banned currency, the government had done zero to ensure that they had adequate legal currency to offer back in change and necessity soon forced these places to stop accepting the banned notes, regardless of what the Fuhrer had decreed. As outrage grew, hasty additions were made to the list that would accept the banned currencies like all hospitals, medical stores and such. Frankly, on the ground and in order to be able to do any business at all, it translated to pretty much anyone with enough change to return for the banned notes accepted them.

It didn't work, as people held on to the increasingly scarce Rs. 100 notes for necessity and local economies ground to a halt. By morning, the situation was clear. Shops accepting cards and such (mostly in the metros) continued to do business, while small town areas like ours were completely shut in the day - there was no money to do transactions with anyone.

By the evening, the classic Indian jugaad had helped some more, and solutions like doing purchases worth the cost of the banned notes was practiced (absolutely everywhere, not just in government listed places). A few places like medical stores took to issuing notes signed by the owner for the balance amounts that could later be exchanged for medicines. But such trade was largely limited to essentials. The economy basically ground to a halt.

The complete abruptness of the move resulted in enough lack of information to do irreparable harm. From money being abandoned or burned to a heart attack from shock that the hard saved 2k a woman was to deposit in the bank was no longer a legal note. Another woman in Telangana sold her land for 50 lakh in cash and committed suicide on discovering the ban, believing that her notes were now worthless. People with weddings in the family were completely stumped for money. Necessities from cooking fuel to vegetables were out of the reach of people. There simply wasn't enough cash for transactions to happen.

There was panic over urgent needs for cash, medical emergencies, travel, weddings and other functions, bill payments and more. Many couldn't afford food. Sellers of perishables made huge losses because their investment spoiled before people had money to buy it.

A thriving black market bloomed overnight that will vanish just as untraceably later over - ironically - national currency. People desperate for money to buy things accepted change for a lesser amount (varied from Rs. 300 to Rs. 450 for every Rs.500 note). Television channels were monuments to the absurd, loudly proclaiming "noton ki jabardast black market" (Black market of currency) one moment and how this move was preventing corruption black money (the government script) at the other.

Supporters of the ruling party took to suggesting anyone who criticized this to be hoarding black money. Others helpfully suggested cashless wallets (incidentally, the Prime Minister appears to have promoted one coinciding with this ban, raising all kinds of questions from quid pro quo to propriety). There was an abundance of information on how to deposit, withdraw or exchange cash. Except.... the banks were closed, as were the ATMs.

By the end of the day, the devastation this move had caused people - and particularly the poor - was so obvious that the need to rapidly return cash to people was beyond obvious, and the government decided that the banks would immediately start supplying the new currency notes for Rs. 500 and Rs. 2000 when they opened. This announcement was pretty much a declaration of the failure to curb black money (or whatever it is the government imagined it was curbing) by strangling the cash flow of the whole country, as the Prime Minister himself had stated that the higher value (also debatable when a large pizza costs more than Rs. 500) notes encouraged hoarding and that is why their ban was a step toward clean money. Not only would new higher value notes be right there, there was one that was higher than the value of any currency circulating so far. But then our ruling party isn't famous for logic.

The new day began with more of the same. Cash shortages. ATMs closed. Banks, supposed to open early, as per government propaganda, mostly didn't. In any case, by 11am, news of banks running out of cash started hitting social media. The situation on the ground is mostly unchanged, because the few people who have been able to exchange currency simply haven't got enough currency in hand to spend it unless necessary. Being able to officially exchange only Rs. 4000 in 14 days makes a mockery of living costs in India. Though of course, people immediately found ways around that - going to multiple banks, using different ID proofs each time, etc. But the fact remains that not even 1% of the population was able to get their hands on usable cash. And no one has so much that they would send it right back into the market with transactions (I also suspect the black market the government has so helpfully invented traps and trades any that circulate, instead of merely using it to provide change at real value).

While some got their cash without much hassle, many spent hours in queues and increasingly angry crowd only to discover that banks had run out of money. Daily wagers lost wages trying to get money, only to not get it and be forced to try again tomorrow. The alternative, of course was to lose anything between 10% and 20% of the value of their hard-earned money and change it in the black market. And this black market was the complete creation of Modi and his government because of their absurdly short notice on the ban and closing of banks immediately after announcing it. While the government propaganda suggests that such suddenness was necessary to prevent illegal hoarders from planning their moves, they can still plan their moves, since the government not being able to replace it rapidly will mean that they have a long time to plan and do it in, just like the other citizens - and particularly the government, which doesn't seem to have realized the mathematical difficulty of replacing 86% of the nation's currency with 14% of the nation's currency and been caught completely unprepared for the results of their own actions.

What is worse, is an insecurity and mistrust about the government and national currency. Talking with people on the street "How can they do this? How can they just cancel our money any time they want?" was a recurring sentiment. People are scared of losing their money. Even when they get their hands on legal cash, it will be a while before anyone forgets that their hard earned money could be rendered worthless on whim and they could suffer for necessities even after working hard and earning enough and the government actions have shown that it is inclined to act on such whims for the sake of drama that is literally funded by the people with insecurity, deprivation, losses of income, inconvenience, sometimes loss of life or social status or money in the black market. As an angry woman put it "How can the government force me to buy my own hard earned Rs.500 for Rs. 400 or not have food for dinner? What is the meaning of this? Why have government guaranteed notes if they can be banned without warning?" People are angry about the ruling party. What is worse, they are in a new position of having to factor in such losses. Ironically, this appears to have made people MORE inclined to hoard money, not less. Most people I asked said that they would now try to keep a larger emergency buffer of money at home and this time would make sure that they had notes of different denominations. Though of course, they still had nowhere near enough for immediate needs, let alone the hoarding they were planning.

Regardless, by afternoon, the government was now making noises about a Rs. 1000 note as well to be introduced. Essentially, it means that the whole tamasha does mostly nothing useful. Not just are the denominations targeted to remain in circulation, an additional and higher denomination has been added while talking of high value notes increasing corruption.

Given that one five hundred rupee note will be replaced by five one hundred rupee notes that no one wants to part with, at the slow pace people are getting money, it is going to be a long and painful time before normalcy returns.

This is what happened. Part 2: will look at this situation with more analysis of other factors and fact checking.