RBI Confirms 99.15% of Demonetized Money Coming Back

30 August, 2018, 09:32 | Author: Manuel Hopkins
  • Demonetisation Flawed in planning not in principle

In fact, the new Rs 500 notes that were issued have seen a bump in terms of counterfeit detection (199 pieces in 2016-17 to 9,892 pieces in 2017-18).

The "humungous task of processing and verification of specified bank notes (SBNs) was successfully achieved", it said.

These estimates, it has not become clear, were wild guesses: the RBI has indicated that 99.3% of the demonetised currency or roughly Rs 15.31 lakh crore was returned. According to the RBI data, 522,783 pieces of counterfeit notes were detected in the banking system in 2017-18. The thinking behind this theory was that if a certain amount of the demonetised currency didn't come back into the system - if it was dumped in a river or burnt to ashes because its owners were afraid of being caught with black money - it would reduce the RBI's liabilities.

According to the report, out of the Rs.15.41 lakh crore of Rs. 500 and Rs. 1,000 notes in circulation post demonetisation, nearly Rs.15.31 lakh crore notes worth have been returned.

"That alone was a loss of Rs 2.25 lakh crore a year", he said. More than 400 cases were referred to the Enforcement Directorate (ED) that arrested 18 evaders, while the Central Bureau of Investigation (CBI) arrested 38 people - insignificant numbers, but definitely a beginning.

Now, even if 100% of demonetised currency returned to the system, it does not mean all of this cash was "white" or money that was generated through wholly legal means.

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Collateral damage as a result of the rise in printing the notes and other cost was dividend RBI pays to the government. Growth has since rebounded to 7.7 percent in the quarter ended March 2018. There was, however, a 2.1% increase in the volume of banknotes.

The old notes of 500-rupee and 1,000-rupee denomination ceased to be legal tender from December 31, 2016. It is a natural process as the GDP grows, payment system grows, currency grows.

"Going forward, the up-tick in credit growth is likely to be supported by the progress" being made under the insolvency code to help address stress on balance sheets of both corporates and banks, recapitalization of public sector banks, and a positive outlook on the economy, the RBI said. Counterfeiters had also shifted to recreating smaller notes and were now able to replicate en masse the new 500 and 2,000-rupee notes, it said.

"I suspect that the bulk of the Rs 13,000 crore is in Nepal and Bhutan and some that was lost or destroyed".

Asked about reports of fake notes presented to the banks post-demonetisation, Garg said a year ago in a RBI report it was said, that all the notes were verified and the amount of fake notes was "minuscule and ignorable".

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