RBI's dilemma: How to communicate the difference between note withdrawal and demonetisation

At the core of the confusion and fury over the Reserve Bank of India’s announcement to withdraw the Rs 2,000 note is mistaking the words “note-withdrawal” used in the May 19, 2023 announcement to be similar to the words “note-cancellation” used in the November 8, 2016 announcement.

In central bank parlance there is a world of difference. The November 8, 2016 announcement said Rs 500 and Rs 1,000 notes are being “cancelled” .and that they will cease to be “legal tender”. The purpose, was to clear out unaccounted or “black “ or non-tax paid money. Hence people had to go with their Aadhar cards so the government could check who held how much cash.

The RBI’s May 19, 2023 release states no such purpose. The announcement clearly says the notes remain legal tender and it is only withdrawing them because their utility is low. They were issued during demonetisation of the Rs 500 and Rs 1,000 notes in 2016 because it was difficult to print a great deal of smaller denomination notes.

Now, with the demonetisation period far behind, the notes are not used much since buyers and sellers find it tough to give and get change for these large value notes. Also, the 2016 demonetisation notice said the Rs 1,000 and 500 notes ceased to be legal tender. RBI’s announcement on Friday says the Rs 2000 notes remain legal tender, which means these are valid notes.

But the general public is still in the grip of the DeMo psyche. The counter question asked is — What happens if someone finds they are holding those notes post September 30, the RBI’s deadline by which people can exchange or deposit their Rs 2000?

Considering that the RBI has clearly said these notes are legal tender, the central bank is legally bound to exchange them (may be to eternity, as of now). Hence, post-September 30, if some people do find some forgotten or misplaced notes and write to the RBI, in all probability, the RBI will arrange for these to be exchanged in three or four of its own regional offices. And eventually it will probably have one window in its Mumbai head office, for any last pieces.

But why doesn’t the central bank say so? Chances are it is hesitant to reveal its plan because that may dilute the importance of the September 30 deadline.

The RBI is likely caught in a dilemma. If it says clearly that the notes will remain legal tender for as long as a citizens are holding it, people will take the September 30 deadline seriously. What is worse, the people actually holding unaccounted money in Rs 2000will be rest assured their money is safe. And the RBI’s plan to clear these notes from the system will remain unfinished, for all the wrong reasons.

Even commercial banks have been unable to read the RBI’s mind that it simply wants to withdraw these notes. A State Bank Of India release on Saturday asked persons with Rs 2000 -to fill a requisition slip and show identity proof. Within 24-hours, mostly on RBI prodding, SBI issued a clarification saying neither a requisition slip needs to be filled nor is any identity proof required to exchange notes. Clearly the intent of the RBI  in this withdrawal measure is not to trace any ill gotten gains.

In the past, the RBI has withdrawn notes with lesser safety features. For instance in 2013-14, it withdrew notes issued before 2005. But these announcements went unnoticed. DeMo has scarred people’s psyche and as a result, the current move to withdraw the Rs 2000 note is mentally getting linked to going after black money. Hence the panic of what if someone innocent is caught unwittingly with these notes post-September 30.

Let me mention two instance from 2017 when two of my acquaintances were caught with cancelled notes post DeMo. An elderly relative of mine had kept an envelope of ten Rs 1,000 notes somewhere in her cupboard. She couldn’t find them despite her best efforts of searching for them post the November 8, 2016 announcement. Months later, on April 14, on the eve of the Vishu festival, she found the envelope wrapped in a silk cloth which she normally spread out on Vishu day to place fruits and flowers in front of a mirror. It’s customary during Vishu for elders to give currency notes to younger relatives and hence the envelope was wrapped with the other 'Vishu things'.

Believing I had something to do with RBI, she pleaded with me to somehow get her ten Rs 1,000 notes exchanged. All I could tell her was. even the RBI governor can’t help in this case.

Months later, one of our office camera attendants came to me with a similar, sadder story. His grandfather had died, and when the relatives cleared his sandook (a tin trunk) they found 25 Rs 1,000 notes. He pleaded, with almost tears in his eyes, “Aap bank mein bade logon ko jaante ho, inhein badlakar deejeeye na (You know people in the bank, can you please have these exchanged?)”. How could I explain to him this legitimate request was beyond me or anyone.

These sad untold memories of demonetisation, may have marked many other families too, and it is these memories that are blurring the public. Understanding of the difference between cancelling notes and withdrawing them. And this, the RBI probably finds it self-defeating to clarify beyond a point.