Demonetization of 500 and 1000 Rupee Currency

The demonetization of 500 and 1000 rupee banknotes is a major initiative taken by the Government of India in November 2016 to combat corruption and black money issues in the country. From November 9th, 2016, all 500 and 1000 rupee notes have stopped to be accepted as a form of legal tender in India.

Announcement of Demonetization

In a televised announcement, Prime Minister of India Narendra Modi declared the circulation of all 500 and 1000 rupee banknotes related to the Mahatma Gandhi series as null and void. He later announced the issue of new 500 and 2000 rupee banknotes in the latest Mahatma Gandhi series and the process of exchange for the old banknotes.

Reason for Demonetization

The demonetization attempt to discontinue current banknotes alleged to be utilized for funding terrorism and for cracking down on black money within the country.

Formerly, comparable measures were taken. In January 1946, the Government withdrew currency notes of the denomination of 1000 and 10,000 rupees and reintroduced new notes of 1000, 5000, and 10,000 rupees in the year 1954. The Janata Party coalition government had once more demonetized notes of 1000, 5000, and 10,000 rupees on 16 January 1978 as a method to restrain forgery and black money.

On 28 October 2016, the total currency observed in circulation in India was Rs. 17.77 lakh crore or US$260 billion. In terms of value, the annual report related to Reserve Bank of India of 31 March 2016 stated that total banknotes in circulation valued Rs. 16.42 lakh crore or US$240 billion, of which almost 86% i.e., Rs. 14.18 lakh crore or US$210 billion was 500 and 1000 rupee notes. With reference to volume, the report has stated that 24% or Rs. 2,203 crore of the total 9,026.6 crore banknotes were in circulation.

The Governor of the Reserve Bank of India, Urjit Patel, and the Economic Affairs secretary, Shaktikanta Das, announced in a press conference that while the supply of notes of all denomination has increased by 40% between 2011 and 2016. The 500 and 1000 rupee notes have increased by 76% and 109% respectively in this period due to counterfeit money. This was then utilized to fund terrorist activities against India. As a result, it takes a step to eradicate the notes.

Procedure for Exchanging Old Notes

• Citizens can submit the discontinued banknotes at any office of the RBI or any bank branch or post office and credit the value into their personal bank accounts.
• Cash withdrawals from bank accounts will have a restriction to Rs. 10,000 per day and Rs. 20,000 per week from November 9, 2016, up till 24 November 2016.
• For urgent cash needs, the discontinued banknotes of value up to Rs. 4000 per person can be exchanged for the recent banknotes over the counter of bank branches from the day of 10 November 2016 by providing valid ID proof.
• The Government guides banks to making available all cash withdrawal transactions at their ATMs free of cost to their customers till 30 December 2016. Cash withdrawals from ATMs will be restricted to an amount of Rs. 2000 per day per card up to 18 November 2016, and the limits will be raised to an amount of Rs. 4000 per day per card from 19 November 2016.
• Exceptions given to petrol pumps/ CNG stations/ government hospitals/ train as well as airline booking stations, state-government recognized dairies, ration shops, and crematoriums for the acceptance of the 500 and 1000 rupee notes until 11 November. International airports would make the possible exchange of notes amounting to the total value of Rs. 5,000 (US$74) for foreign tourists and travelling passengers.