The demonetisation of Rs 500 and Rs 1,000 notes was announced by Prime Minister Narendra Modi on November 8, 2016, even before formal approval by the RBI central board, an RTI query has revealed. There is very little information on what the RBI thought about note ban.

At that time RBI board had met just two-and-a-half hours before Modi’s announcement, the minutes of the meeting were signed by the RBI governor five weeks later on December 15, 2016.

The government had said that demonetisation would help to take on black money and this will help them check the circulation of fake currency and promote e-payments. But according to minutes of the RBI board meet at 5.30 pm on November 8, 2016, before the PM announced demonetisation, some directors said, “Most of the black money is held not in cash but in the form of real sector assets such as gold or real estate and this move would not have a material impact on the assets.”

However, after the decision was taken, these directors supported the move — which had been under discussion with the Centre for six months — in “larger public interest”, as it provided an opportunity to promote financial inclusion and digital payments.

“Proposed step presents a big opportunity to take the process of financial inclusion and incentivising the use of electronic modes of payment forward…,” RBI directors said. Some had cautioned the govt. against “short-term negative effect on the GDP” for 2016-17, although they termed it a “commendable measure”.

“It is a commendable measure but will have short-term negative effect on GDP for the current year. Most of the black money is held not in the form of cash but in the form of assets such as gold or real estate and that this move would not have a material impact on those assets,” as per the minutes posted by RTI activist Venkatesh Nayak on the website of Commonwealth Human Rights Initiative.

Quote source: IndianExpress

In response, the government had said that during 2011-12 to 2015-16, the economy had expanded by 30%, while the pace of rise in Rs 500 notes was 76% and that of Rs 1000 notes was 109%. In counter, RBI said, “The growth rate of economy mentioned is the real rate, while growth in currency is nominal… Hence, the argument does not adequately support the recommendation.”

Article source: EconomicTimes