Even after a year of demonetisation, not all banned currencies have returned home. There is a substantial amount of money that is floating in foreign countries like Nepal and Bhutan (read here), and also with currency exchanges operating outside India.
These entities are in possession of invalidated Rs 500 and Rs 1,000 notes and are in a state of uncertainty. Data submitted to Parliamentary finance committee suggests that Rs 16,000 crore has not returned to the banking system. It is not clear what portion of this would be abroad. Who hold these currencies? There are two category of note holders -- individual NRIs and currency exchanges.
For individual NRIs, the grace period to return old notes expired on 30 June 2017 at five Reserve Bank offices at Mumbai, New Delhi, Chennai, Kolkata and Nagpur. But, as far as the currency exchange houses are concerned, the RBI notification was silent, according to a response from Bank of Baroda to Firstpost in reply to a query on whether there was a mechanism for currency exchange houses to exchange their old, invalidated Indian currency notes. “The RBI notification /FAQ is silent on currency exchange houses – depositing SBNs,” said the response.
An email sent to the RBI early this week seeking its response remained unanswered until the time of writing this piece. A Firstpost story published on 8 November (read here) gives an example of one such currency exchange based in Dubai. It had written to Union finance minister Arun Jaitley, petitioning that it is stuck with a big amount (Rs 56 lakh) of old notes post the demonetisation on 8 November 2016. This amount was accumulated prior to the announcement, the company claims.
This could be only one among the many cases where currency exchange houses across countries are badly stuck with old Indian money. Since the rules weren’t clear for them to deposit this money, they continue to hold it. Interestingly, even after a year of demonetisation, both the RBI and the government are undecided as to how to deal with the demonetised currency floating in other countries, according to the ToI report cited above. This yet again proves the lack of careful planning on the part of the government as to how to execute the currency withdrawal programme.
Remember, nearly 99 percent of the demonetised currency has already come back to the banking system in the form of direct deposits, according to the RBI’s last annual report. But, this excludes the money received at cooperative bank counters and floating in other countries. In December, Attorney General Mukul Rohatgi had told the Supreme Court that the government had expected only Rs 10-11 lakh crore to return to the system. It is highly unlikely that the government and the RBI opening fresh windows for those still holding old notes to deposit that money. Finance ministry had clearly ruled out this possibility in August this year (read here).
This puts the currency exchange houses abroad in a difficult situation. The government must address their concerns. Remember, it is the duty of the government and the monetary authority of a country to fulfill the promise given to the holder of currency notes that the value of the currency will be protected. When Prime Minister Narendra Modi unexpectedly announced the decision to demonetise the notes effective the midnight of 8 November 2016, many of the foreign entities were already holding these notes. These entities were not given adequate facilities to exchange this money unlike resident Indians and entities. Leaving these institutions in a continued state of uncertainty would not augur well for the government and the central bank. They should urgently work on ways to address the concerns of Indian currency holders abroad.
Published Date: Nov 10, 2017 12:53 PM | Updated Date: Nov 10, 2017 12:53 PM