India’s Central Bank Had Reservations About The Banknote Ban

The Reserve Bank of India (RBI) has testified that its board had problems with the government’s plan to ban certain banknotes from circulation. The written testimony was submitted to parliament, as the country looks into why the project nearly ground some aspects of the economy to a halt. The bank was concerned it wouldn’t be able to replace the notes on time. Despite their reservations, they gave the go-ahead for Prime Minister Narendra Modi to forge ahead. On the 8^th of November 2016, the government revealed that 86 percent of the notes in circulation would become useless overnight. The central bank has since struggled to print enough 500 rupees and 2000 rupees notes to replace those taken out of circulation.

The bank did expect it to be an inconvenience to the public for some time, though they may have underestimated how much so. “It might not immediately be possible to replace these notes fully in terms of both value and volume,” RBI’s board said in a meeting before the plan was implemented. The bank thought it would be able to quickly replace the notes and also believed it was worth it. The idea was to remove counterfeit money from circulation, increase spending and trust and bring out hidden cash reserves not in banks. However, as the controversy waged had on, blame has been passed between the two groups. The government is being accused of over-ruling the central bank, while the bank is accused of negligence. There are still some in government who believe the move was necessary and would help purify India’s economy.