The Reserve Bank of India (RBI) has decided to withdraw all currency notes issued prior to 2005 from circulation on 21 January 2014.
From 1 April 2014, Banks will provide exchange facility to the general public for exchanging the pre-2005 issued bank notes. The notes issued before 2005 do not have the year of printing on the reverse side.
However, bank notes issued before 2005 would continue to be legal tender. That is banks are required to exchange the notes for their customers as well as for non-customers. From 1 July 2014, those wanting to exchange more than 10 pieces of 500 and 1000 rupee notes in a bank where they do not have an account will have to provide proof of residence and identity.
The move by the RBI is to capture the money flows into the system and also to help flush out counterfeit notes. This would leave currency hoarders with no option but to liquidate their unaccounted holdings by spending or exchanging them.
As of March 2012, as many as 5 lakh fake bank notes had been detected in the banking system, a 31% jump from the year before. In its annual report, RBI asked banks to ensure that the notes they receive over the counter are sent back into circulation only after they being properly authenticated.
Globally, it is a practice across central banks to phase out banknotes at regular intervals.