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Old note exchange hassles eased

Mumbai, Jan. 24: The Reserve Bank of India today said people could start exchanging their pre-2005 currency notes at “their convenience” — an advisory that was clearly issued to quell panic among those holding the “tainted” notes.

The central bank said these notes would remain legal tender even after July 1, which means banks will be obliged to accept them whenever they are presented.

The RBI said it would continue to monitor and review the process of their withdrawal so that the public isn’t inconvenienced in any manner.

The Reserve Bank had caught everybody by surprise when it announced that after March 31, it would completely withdraw from circulation all bank notes issued prior to 2005. It had then said that from April 1, people would have to approach banks to exchange these notes.

Though the central bank has in the past withdrawn old currency notes from the market by asking banks to not circulate them, this is the first time in recent years that such a public advisory has been issued.

If one were to look back to history, Rs 1,000 and Rs 10,000 banknotes which were then in circulation were demonetised in January 1946 to curb unaccounted money. Bank notes of Rs 1,000, Rs 5,000 and Rs 10,000 denomination were re-introduced in 1954, and these banknotes (Rs 1,000, Rs 5,000 and Rs 10,000) were again de-monetised in January 1978.

RBI governor Raghuram Rajan, who had sparked an alarm after his latest move to cull notes printed before 2005, has insisted that the pre-2005 notes are not being de-monetised. The step has ostensibly been taken to stop counterfeiting because those notes had fewer security features.

Many feel that the abrupt decision has the potential to cause inconvenience to individuals as some establishments may refuse to accept these currency notes, sparking a scramble at bank branches.

In a clarification today, the RBI said that members of the public could initiate the process of exchanging notes at bank branches at their convenience.

Though the central bank did not specifically say it bluntly, this effectively means that individuals can start exchanging these notes at bank branches even beginning tomorrow.

However, there is some uncertainty on this front. A chief of a leading public sector bank told The Telegraph that detailed instructions from the RBI were still awaited on the procedure that has to be adopted. He added that these notes would be accepted at his bank’s branches after these guidelines were received.

The bank chairman, however, did point out that the bank did not anticipate panic at its branches as its currency chests were well equipped to deal with any rush. “If required, the currency chests will be strengthened,” he added.

A spokesperson of the RBI said the number of pre-2005 notes in circulation was not significant to warrant panic.

On Thursday, Rajan said the order was not aimed at demonetisation; nor was it linked to the forthcoming general elections when, it is suspected, a lot of black money invades the financial system.

“I have to say that it (withdrawal of the notes) has nothing to do with elections which certainly is not the objective,” he observed.

Tax expert Subhash Lakhotia believes the exercise could set the tax sleuths on the prowl because of statutory rules that require banks to inform tax authorities of cash-based transactions above Rs 10 lakh in a fiscal year by an individual in the form of deposits.

 
 
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