With a motive to check the black money circulating in the economy and to in turn suppress the circulation of Fake Indian Currency Notes (FICN), which are now extensively being used for insurgent activities such as espionage, smuggling of arms, drugs, etc., the Finance Ministry has decided to cancel the legal tender character of the High Denomination bank notes of Rs.500 and Rs.1, 000 issued by the Reserve Bank of India (RBI) till now. According to an official press release, this will take effect from November 9, 2016.
These denominations are specifically being cancelled as the FICN in circulation are mainly of 500 and 1000. New series bank notes of Rs.500 and Rs.2,000 denominations will be introduced for circulation from November 10, 2016. The infusion of Rs. 2, 000 bank notes will be monitored and regulated by the RBI. The new series of banknotes will be distinctly different from the current ones in terms of look, design, size and colour.
The government has taken this decision in the light of increasing use of FICN, which is in turn facilitating financing of terrorism and drug trafficking. It has been found that these high denomination notes are being used to store unaccounted wealth. While the total number of bank notes in circulation rose by 40% between 2011 and 2016, the increase in number of notes of Rs.500 denomination was 76% and for Rs.1, 000 denomination was 109% during this period. High denomination notes could directly be considered as the means for generating black money
In order to implement the above decisions of the government, keeping in view the need to minimise inconvenience to the public, the following operational guidelines have been issued:
(i) Old High Denomination Bank Notes may be deposited by individuals into their bank accounts and exchanged in bank branches or Issue Offices of RBI till the close of business hours on December 30, 2016.
The timely intervention by the government is supposed to meet the required output and the circulation of black money, which in different ways is hampering economic growth, is expected to be curbed.