PM Modi’s announcement regarding the ban on Rs 500 and 1000 Notes has come as a surprise for all of us. But, this is not the first time that the Indian government has taken such a bold step to tackle the menace of black money. We list down the earlier instance, when the government has demonetized high-value currency.
The blockbuster announcement regarding the demonetization of Rs 500 and Rs 100 notes has stunned the country. Termed as a bold step in the right direction to tackle the challenge of black money, the move has come as a surprise for all including the general public, economic pundits and even political circles.
While it may look like a bolt from the blue to the general public, but this is not the first time that the Indian government has demonetized high-value currency notes. Earlier as well, the government of India has used ban on high denomination notes like Rs 1000 and Rs 500 to counter the menace of black money.
The first instance, when currency notes were demonetized in India, was during the pre-independence era. In 1936, during the British Raj, the Reserve Bank of India had printed higher denomination notes of value worth Rs 1,000 and Rs. 10,000. In fact, Rs 10,000 is the highest denomination of notes that were ever printed by the RBI. These notes were banned or demonetized in January 1946 to manage the circulation of black money prior to the independence of India.
In another similar instance, considering the then prevalent economic scenario, the Government and Reserve Bank of India decided to reintroduce Rs. 1,000, Rs. 5,000 and Rs. 10,000. However, this again led to the creation of parallel economy which was dominated by black money. In a bid to counter this, the higher denomination notes of Rs. 1,000, Rs. 5,000 and Rs. 10,000 introduced in 1954, were banned in January 1978.
The ban was enforced under the High Denomination Bank Note (Demonetisation) Act, 1978, which came into force on 16th January 1978. Under the new law Rs. 1,000, Rs. 5,000 and Rs. 10,000 ceased to be legal tender after 16th January 1978, and transfer and receipt of high-value notes was prohibited under the new law. Citizens were given time until 24th January 1978 to exchange high denomination notes from banks. However, the impact of demonetization of currency in 1978 was not seen on the general public as very few people possessed high value currency notes.
As stated earlier, circulation of currency notes of higher value has been the main culprit when it comes to expansion of black money in the economy. This leads us to another question, as to why the Rs 500 and Rs 1000 introduced. Well, here are the answers!
The Rs 500 note that is currently in circulation was introduced in the October 1987, whereas the Rs 1000 note was brought into circulation in November 2000. During both the instances, the government justified the step as a means to control the volume of banknotes in circulation. The introduction of Rs 500 and Rs 1000 notes was aimed at controlling the inflation and bring down the commodity prices. In addition to this, the newly launched currency notes also claimed to be equipped with some additional/new security features to keep track of fake currency notes in the country.
As right put by our PM Modi, the demonetization of Rs 500 and Rs 1000 currency notes will surely impact all citizens in short-term; but it is surely a step in the right direction. With a commitment to corruption free India, we all must co-operate and help in the transition and the results will surely benefit all of us.