RBI’s order to withdraw all currency notes of pre-2005 creates confusion that could be easily avoided
In a positive move, the Reserve Bank of India (RBI) has decided to mop up currency notes with lower security features which have been widely counterfeited. But the way it went about it caused a burst of initial panic. RBI needs to learn that issues which impact the aam aadmi need clear and comprehensive communication rather than bureaucratic circulars followed by multiple clarifications. Now, here are some facts that should have been communicated along with the mid-January circular to withdraw currency printed prior to 2005 (where the notes do not mention the year of printing and have less security features and, hence, are widely counterfeited).
First, RBI’s CVPS (currency verification & processing system) machines have already been withdrawing pre-2005 notes for nearly a year. The new circular is only to mop up the residual notes. This was one of the measures to counter the large number of sophisticated counterfeit notes which can be detected by only CVPS machines. It is, however, unclear why the exercise includes Rs10, Rs20 and Rs100 notes, where counterfeit or fake notes are of poor quality and easier to detect.
RBI had initially instructed banks to exchange notes only after 31st March and this set off panic among users when uninformed shopkeepers and taxi-drivers refused to accept old notes. Immediately, a brisk business of exchanging pre-2005 notes at a 2% commission sprang up in Mumbai, as reported by a local daily. Following a clarification by RBI, banks are now exchanging pre-2005 currency without a murmur. Our sources also tell us that bank ATMs will not dispense old currency notes.
By announcing a positive and pre-planned move on the eve of a general election, without adequate public information, RBI caused needless confusion. Governor Raghuram Rajan had to use his post-credit policy press briefing on 28th January to clarify that the currency clean up was not aimed at catching tax-evaders or attacking black money. RBI still needs to put in place a communication strategy to reach out to 300 million-plus unbanked Indians who deal only in cash. A radio campaign in local languages and a programme to work with banking correspondents to facilitate the mop up of old currency must be put in place well before 31st March to avoid another round of confusion and exploitation of those who have limited means.
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