January 11, 2017
This refers to the report “It was govt. that advised RBI on demonetization’(The Hindu, January 11). After a relentless campaign against the November 8, 2016 announcement withdrawing ‘legal tender’ character of Rs1000 and Rs500 notes and reaching nowhere, the media and a section of analysts are dragging in eminent statesmen to comment on the impact of demonetization on economy and trying to create an impression that RBI and GOI were not on the same page on the measure and its implementation. It is argued here that ‘RBI Act does not give the central bank to demonetize an entire denomination.’Section 26 of the RBI Act reads asunder:
“26. Legal tender character of notes.
(1) Subject to the provisions of sub-section (2), every bank note shall be legal tender at any place in 4[India] in payment or on account for the amount expressed therein, and shall be guaranteed by the 5[Central Government].
(2) On recommendation of the Central Board the 6[Central Government] may, by notification in the Gazette of India, declare that, with effect from such date as may be specified in the notification, any series of bank notes of any denomination shall cease to be legal tender 7[save at such office or agency of the Bank and to such extent as may be specified in the notification].”
It is well known that RBI and GOI hold ongoing consultations on policy issues. Whatever be the stance of political leadership, so far there is no evidence to show that RBI had expressed dissent on the idea of the withdrawal of high value currency. The quote from the note recorded by RBI and submitted to Parliamentary Standing Committee shows that RBI Central Board gave its view on GOI proposal, before the November 8, 2016 announcement. In a democracy, mooting of proposal for such a significant measure by government and central bank agreeing to it after due deliberations should not have become a subject of controversy.
M G Warrier, Mumbai