TIMES VIEW
Needed to counter fake currency
Reserve Bank of India's decision to completely pull out banknotes issued before 2005 was taken to limit the impact of fake currency notes in the economy. According to RBI governor Raghuram Rajan, the central bank's announcement was triggered by a long-standing demand from the government. RBI's move is a necessary step to combat fake currency notes, which represent a low key but devastating aspect of terror activities directed at India. Injecting fake currency into an economy is a variant of a notion attributed to Bolshevik leader Vladimir Lenin, who reportedly said the best way to destroy a capitalist society is to debauch its currency.
India's National Investigation Agency has constituted a Terror Funding and Fake Currency Cell, which underlines the seriousness of the issue. In response to a question in Parliament last August, finance ministry representatives said almost two lakh fake currency notes worth Rs 10.14 crore had been recovered. Fake notes had been printed in Pakistan and smuggled into India through China and Nepal. To leave the issue unaddressed can lead to economic panic when fake notes cross a threshold. Over time, autho-rities have increased security features in currency notes. The aim now is to phase out weak links in the chain.
To offset the possibi-lity that RBI's current move will also lead to panic, especially among poor people who transact entirely in cash, changes are being made in a graded manner. Currency notes issued prior to 2005 will continue to be legal tender, which means there is no deadline. RBI's move does two things. One, it raises awareness about the issue. Second, it encourages people to exchange existing notes with ones that have enhanced security features. Inconvenience is a small price to pay to protect the economy from terror networks.
COUNTER VIEW
The move makes no sense
Pyaralal Raghavan
The RBI's effort to clamp down on counterfeit currency by withdrawing from circulation currency notes issued prior to 2005 is galling and can only inconvenience the general public. It will cause substantial losses to the large majority of people living in far-flung villages, who have no access to banking facilities. They will be forced to exchange the old notes through brokers and other intermediaries who take hefty cuts and enrich themselves. Withdrawal of currencies also has much larger implications in poor countries like India, where a fall in the credibility of national currencies can force people to shift their savings to other instruments, especially gold. This can once again significantly push up gold imports, bloat current account deficit and even lead to further depreciation of the rupee.
The timing of the RBI move just a few months before the next general elections also raises suspicions that it was made to ferret out large stocks of liquid cash hoarded by political parties and their supporters. This is especially so because the currency withdrawal decision comes at a time when RBI's own data shows that the share of counterfeit notes detected has come down over the years in relative terms. Studies made by the RBI show that the number of counterfeit notes detected has come down from 8.1 per million notes in circulation (pmnic) in 2007-08 to 7.51 pmnic in 2011-12. This is not too alarming given that share of counterfeit bank notes was as high as 10 pmnic in Switzerland and 76 pmnic in Canada. And even in absolute terms the number of counterfeit notes detected in India shows that the number has gone down from 5,21,155 pieces in 2011-12 to 4,98,252 in 2012-13.
Withdrawal of currencies in such a scenario makes no sense. Instead the RBI should have taken urgent steps to strengthen counterfeit detection machinery and introduce plastic/polymer banknotes which have security features that are difficult and expensive to counterfeit.
Source : The Times Of India
Needed to counter fake currency
Reserve Bank of India's decision to completely pull out banknotes issued before 2005 was taken to limit the impact of fake currency notes in the economy. According to RBI governor Raghuram Rajan, the central bank's announcement was triggered by a long-standing demand from the government. RBI's move is a necessary step to combat fake currency notes, which represent a low key but devastating aspect of terror activities directed at India. Injecting fake currency into an economy is a variant of a notion attributed to Bolshevik leader Vladimir Lenin, who reportedly said the best way to destroy a capitalist society is to debauch its currency.
India's National Investigation Agency has constituted a Terror Funding and Fake Currency Cell, which underlines the seriousness of the issue. In response to a question in Parliament last August, finance ministry representatives said almost two lakh fake currency notes worth Rs 10.14 crore had been recovered. Fake notes had been printed in Pakistan and smuggled into India through China and Nepal. To leave the issue unaddressed can lead to economic panic when fake notes cross a threshold. Over time, autho-rities have increased security features in currency notes. The aim now is to phase out weak links in the chain.
To offset the possibi-lity that RBI's current move will also lead to panic, especially among poor people who transact entirely in cash, changes are being made in a graded manner. Currency notes issued prior to 2005 will continue to be legal tender, which means there is no deadline. RBI's move does two things. One, it raises awareness about the issue. Second, it encourages people to exchange existing notes with ones that have enhanced security features. Inconvenience is a small price to pay to protect the economy from terror networks.
COUNTER VIEW
The move makes no sense
Pyaralal Raghavan
The RBI's effort to clamp down on counterfeit currency by withdrawing from circulation currency notes issued prior to 2005 is galling and can only inconvenience the general public. It will cause substantial losses to the large majority of people living in far-flung villages, who have no access to banking facilities. They will be forced to exchange the old notes through brokers and other intermediaries who take hefty cuts and enrich themselves. Withdrawal of currencies also has much larger implications in poor countries like India, where a fall in the credibility of national currencies can force people to shift their savings to other instruments, especially gold. This can once again significantly push up gold imports, bloat current account deficit and even lead to further depreciation of the rupee.
The timing of the RBI move just a few months before the next general elections also raises suspicions that it was made to ferret out large stocks of liquid cash hoarded by political parties and their supporters. This is especially so because the currency withdrawal decision comes at a time when RBI's own data shows that the share of counterfeit notes detected has come down over the years in relative terms. Studies made by the RBI show that the number of counterfeit notes detected has come down from 8.1 per million notes in circulation (pmnic) in 2007-08 to 7.51 pmnic in 2011-12. This is not too alarming given that share of counterfeit bank notes was as high as 10 pmnic in Switzerland and 76 pmnic in Canada. And even in absolute terms the number of counterfeit notes detected in India shows that the number has gone down from 5,21,155 pieces in 2011-12 to 4,98,252 in 2012-13.
Withdrawal of currencies in such a scenario makes no sense. Instead the RBI should have taken urgent steps to strengthen counterfeit detection machinery and introduce plastic/polymer banknotes which have security features that are difficult and expensive to counterfeit.
Source : The Times Of India
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