Contrary to popular belief, it was the Centre that had “advised” the Reserve Bank to junk ₹500/1,000 notes on November 7 and the board of the central bank recommended their demonetisation the very next day.
In a seven-page note to Parliament’s Department-Related Committee of Finance, the RBI stated that the government had on November 7, 2016, “advised the Reserve Bank that to mitigate the triple problems of counterfeiting, terrorist financing and black money, the Central Board of the Reserve Bank may consider withdrawal of the legal tender status of the notes in high denominations of ₹500 and ₹1,000.”
The Cabinet headed by Prime Minister Narendra Modi met within hours of that recommendation on November 8 and banned circulation of old ₹500 and ₹1,000 notes.
Some Union ministers have thus far maintained that the Centre had only acted on the RBI’s recommendation.
In the note to the panel, the RBI said it had been working on introduction of a new series of banknotes in the last few years with improved security features to secure them against counterfeiting. In parallel, the government had been taking steps to curb black money and combat terrorism.
“There were reports by intelligence and enforcement agencies that availability of high-denomination banknotes made it easier for black money hoarders, and counterfeited notes in high denominations were being used for terrorist financing,” the RBI said.
“It occurred to the Government of India and the Reserve Bank that the introduction of a new series of notes could provide a very rare and profound opportunity to tackle all the three problems of counterfeiting, terrorist financing and black money by demonetising the banknotes...” the note said.