New Delhi November 9: On the second anniversary of demonetisation, intercepts from a key RBI Board of Directors meeting held four hours before Prime Minister Narendra Modi's shock address, has revealed that the central bank had approved the note ban but disapproved the government's claim on black money and counterfeit currency.
In the hurriedly convened 561st meeting of the RBI at 5:30pm on November 8, 2016, the proposal of demonetisation was tabled. While the Board of Directors described the demonetisation drive as "commendable", they marked their difference on government's two key justifications for implementing it: the destruction of unaccounted wealth and fake notes in circulation. Scars of 'Ill-Fated' & 'Ill-Thought-Out' Notebandi Still Visible: Ex-PM Manmohan.
On unaccounted wealth, the RBI officials noted in the meeting that a small portion of black money is held in cash, whereas, the majority is stacked up through benami properties and purchase of gold.
"Most of the black money is held not in the form of cash but in the form of real sector assets such as gold or real-estate and… this move would not have a material impact on those assets," the RBI directors were quoted as saying in the minutes of the meeting. Two Years After Demonetisation: Opposition Reminds PM Modi of '50-Day Deadline'.
On counterfeit currency, the Finance Ministry had said that demonetisation of 500 and 1000-rupee notes was necessitated to destroy Rs 400 crores of fake notes in circulation.
The top central bank officials contended to the claim that counterfeit notes are a subject of concern, but asserted that "Rs 400 crore as a percentage of the total quantum of currency in circulation in the country is not very significant".
Apart from the two major disagreements, the RBI also warned the government that the shock measure would adversely impact the GDP in the the current year.
The regulator also red-flagged the unprecedented hardships to be unleashed on medical and tourism sectors due to higher currency being turned non-legal tender with immediate effect.
The minutes of meeting, signed by RBI Governor Urjit Patel on December 15, 2016, denied the charge that the central bank was kept in dark about the demonetisation exercise. RBI was informed that the government was contemplating over the exercise nearly six months in advance.