Futile debate
January 11, 2017
Futile debate
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
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