RBI’s decision to ban currency notes prior to 2005 - Pros and Cons

RBI’s decision to ban currency notes prior to 2005 - Pros and Cons

The Reserve Bank Of India recently announced that all the notes published before 2005 or notes which do not have printing year specified will not be accepted in the market after 31 march, 2014. Although such notes can be replaced by the banks, but people have apprehensions about it, let’s have a look:

For the decision

1. This step by RBI will make a strong check on the currency hoarders of notes published before 2005.

2. The black money present in the form of currency notes will come out in the market.

3. The notes before 2005 were more prone to counterfeiting as compared to notes published after 2005. This step will check counterfeiting of currency to a great extent.

4. This step will indirectly give a boost to GDP as people who have notes before 2005 will try to spend that currency in the market before 31st March.

5. Even the notes before 2005, will remain to be a legal tender and can be replaced by any bank. So the currency will not become obsolete completely.

Against the decision

1. This step has created a situation of panic among the common people regarding the currency they hold.

2. The people hoarding black money will try to spend that amount by purchasing gold or investing somewhere else before the deadline. So this will not ensure that black money is checked out of the market.

3. The people who have to exchange their old notes with new ones will have to provide their identity and residence proof. This will make the process of exchange very complicated.

4. The rural and very poor class will suffer the most as they would hardly be in a position to go through the currency exchange process with the banks.

5. It is not sure that the counterfeited notes before 2005 are still in the market and so it is not sure if the counterfeiting objective will be achieved or not.

Conclusion

The step by RBI to tackle black money and counterfeiting is a welcome step but it would be successful only if people are properly aware about the decision of the head bank. Also it is very important that such major decisions are taken only after wide consultation and study of data. Only then such steps can achieve their target otherwise they can become a tool of panic for customers.