Monthly Archives: November 2016

RBI consent in demonitization

In the present days of modern monetary system, independence of Central banks is given paramount importance. FED, ECB every single one has guarded this independence tooth and nail. Demonetization of 85% of currency takes some nerves, just too much risk is involved. Which raises question how much was the involvement of RBI in it. Media states on six people knew about it, RBI governor and ex-governor (erstwhile governor)  from RBI knew of it. Which means it never reached the board. This makes is much more murkier. Dr Rajan and Dr Subbarao put everything inline to protect this independence. I wonder how much is it now. It almost seems North Block is running RBI. Shaktikant Das is making all the announcement, Dr Urjit Patel is not be seen anywhere. Ex- Dy Director KC Chakrabarty spills the beans further. This was proposed during UPA-II time, but was rejected and did not reached the board state.


Why old notes could find takers in bullion market


With demonetisation of Rs 500 and Rs 1,000 notes, bullion dealers expect demand to go up for a few days and cash business of jewellers may increase.


Jewellers could show backdated cash sales. Veteran bullion dealers say that those who have cash in hand on their books could also buy such notes at a discount and deposit it in banks later on.


Sudheesh Nambiath, lead analyst — precious metals demand, GFMS, Thomson Reuters said, “The move will potentially create a surge in demand for for next few days while the backdated bills would be made to show the transactions as genuine.”


Another bullion dealer said jewellers and diamond traders usually show bills while depositing cash generated by sales every week. In cases where very high value deals happen in cash, they split bills in smaller amounts or cite stolen numbers in those bills.


“Prime Minister played the Morarjee Desai card,” said a veteran bullion dealer. “In January 1978, all high-denomination banknotes (Rs 1,000, Rs 5,000, and Rs 10,000) were demonetised or withdrawn from the circulation to curb unaccounted money. In those days, traders who were having cash on hand on their books had accepted high value notes even after they were withdrawn because they had facility to deposit them in the banks. In bullion market such notes were sold for 30 per cent discount and those who bought were having arrangements to deposit them in banks, officially showing cash business. But those who could not exchange notes or sell them at discount were forced to use them as tissue papers,” he said.


In 1978, then government had issued an ordinance demonetising high value currency notes to unearth black money. The idea of terrorism and currency wars was not common till then. Smuggling was at its peak. Later an Act called The High Denomination Bank Notes (Demonetisation) Act, 1978 was passed to give legal status to the withdrawn notes.


Veterans say that Rs 1,000 and Rs 10,000 banknotes, which were in circulation, were demonetised in January 1946, primarily to curb unaccounted money. Later, higher denomination banknotes of Rs 1,000, Rs 5,000 and Rs 10,000 were reintroduced in 1954.