Devalued Currency Notes- Why we still get it from streets

As on November 8, the day demonetisation was announced, there were 1,716.50 crore pieces of Rs 500 and 685.80 Crore Rs 1,000 notes in circulation, which are no more legal tender. The total value of these notes is 15.44Lakh Crore[1]

When a currency is devalued, its demand fades and people cease to use such currency, except for numismatic purposes. On the contrary, after demonitization, there is a demand for devalued currency notes in India, even after the expiry of period for exchange with new notes. We still read news about confiscation of devalued notes. It is reported by media that the RBI and Police doesn’t have a clue about this[2]. May be Police does not have a clue, but definitely RBI has.

RBI is still counting on notes. I don’t think that the counting will be over in my lifetime. I was wondering why the counting was not over, despite earnest effort of all bankers across India.  To understand this, we need to understand the note distribution process and channel.  The RBI has set up over 4,075 currency chests all over the country, which is controlled by RBI offices in 31 locations spread across country[3]. RBI distributes its currency notes over the currency chests across India, from which the money flows to Public through the branches of Banks, who in turn source the currency from these chests. Various Private and Public sector banks are the facilitators of such currency chests, through its employees and infrastructure.  The currency chests are controlled by RBI. These chests stores currency and have actual denomination wise stock details about the currency, which is tallied with its physical available stock. All currency chests are required to submit the data in pre-defined intervals.  Hence RBI has data in its hand with regard to the details of the denomination wise stock of its currency stocked across the currency chests, spread across the country. However, they are failed to provide the data despite repeated requests from various corners.

If RBI is able to provide data on stock of currency notes kept by various stocks across its chests, why they are not able to provide data of demonetized notes, despite the expiry of 6 months of demonetization?.

I hope you still remember some recent incidents such as exchange of currency notes to certain customer the bank officials also got arrested[4] , some go missing[5]etc. As the bank officials are the direct participants of the exercise, the chance of making quick buck out of the demo exercise is none other than them. A group of scrupulous bankers with nexus with Black Money market can do derail the demo exercise. If similar 10-15 groups operates independently or inter-connected, then what would be the fate of the whole demonetization exercise.[6]

Why there is still demand for devalued currency

As per Dec 14, 2016 news report, it is expected that Rs 3Lakh Crores of currency was expected to be returned. Even before the issue of newly denominated notes to public, certain highly influential people got the fresh currency under their pillow[7].

Urjit Patel (RBI Governor) told that it would require longer time to complete the counting of notes returned to chests[8].  How can we believe, such arguments, while chests are equipped with advanced equipments that sort, process and bundle currency notes automatically. Its not his fault that he doesn’t know what happens in chest. He is just reiterating, without checking what his junior officers reported to him. 

It was reported that about Rs 15Lakh crores came back to currency chest and only few remains. The report means to infer that the Indian Economy is clean and is not plagued by black-money. I am sure, no common can gulp such arguments. If that much money came, then why there is a delay in officially declaring the same?.  The reason is that, there are gaps between the reported amount in news and the physical stock available in chests. The demonetization exercise was a success in curbing the black money and the unaccounted money is still lying with various hands, which finds its way to RBI chests through illicit ways. If there is a stock of Rs 15Lakh Crores of devalued currency in our chests, there is no need for the confiscation of devalued currency from streets as nobody will take effort to carry devalued money to North India. The curbing of devalued notes states that it has demand and someone is still exchanging the notes. Who it can be?. It leads to only one possibility.  "The reports made by currency chests are wrong and they inflated the reported numbers of currency. The currency they reported as received is not yet returned to chest". It is still lying in streets. Hence they are not able to tally the physical stock with the reported stock. The officials related to chests has made and making immense profits by just exchanging notes by over-reporting of devalued currency as received to the chests. They reported devalued currency as received, and exchanged the newly printed notes in anticipation of the receipt of devalued currency on future date.

If the final report is submitted, the bankers in currency chest will not be able to add additional demonetized notes and there would be definitely a gap of more than Rs 2-3lakh Crore atleast. Hence, they will try to prolong the final report as long as possible.  As per news reports after Demonetization, about 97% of devalued currency notes were reported as came back to currency chests[9] [10]. Hence a serious inquiry is needed into the delay in the counting of currency notes and RBI should come up with a status quo report. We cannot afford to beat the very purpose of demonetization down just for the benefit of few individuals.

If you feel that my arguments are correct, please do share. If not do scythe.

PS: Imagine yourself as a banker, or a person who deals with currency. As you are in charge of currency chest, you may require to submit the data in real-time to RBI. But if your physical data is not tallied with the reported data, what will you do?. You will make the report complicated and will delay the entire process, as the publishing of data is detrimental to your interests. Some chests have genuine reasons, but some has “genuine” reasons. The shortage of staff, adequate working equipment to count the notes, soiled notes are some issues currently faced by the currency chests.  Most of the currency chests might have completed the counting of demonetized notes by now. Only few might be pending to complete the exercise. As the issue is of national importance and security, that affects the financial stability of the country, banks should be instructed to depute additional manpower, if required to complete the process within a targeted time. We can’t afford to prolong the process and a war footed effort is required in this.