Surgical strike on black money, an explainer

We look at how this demonitisation plan announced by Prime Minster Modi will be able to curb black money.

Published: 09th November 2016 05:18 AM  |   Last Updated: 09th November 2016 08:09 AM   |  A+A-

black money

Image for representational purpose only.

By Express News Service

Demonetisation is the act of stripping a currency unit of its status as legal tender. Rs 1000 and Rs 500 notes were taken out of circulation on Tuesday. Rs 2000 notes and new Rs 500 notes are to be issued now.

A History of Demonetisation

  • Rs 1,000 and Rs 10,000 banknotes were demonetised in January 1946

Rs 1000, Rs 5000 and Rs 10000 notes were reintroduced in the year 1954, and they were again demonetised in January 1978 to curb unaccounted money

In 2014, the RBI announced it would withdraw from circulation all banknotes issued prior to 2005

Rs 1,000 notes were introduced again in November 2000 and constituted 39% of notes in circulation at the end of 2014-15. D500 notes were introduced in October 1987 and constituted 45% of the total stock

Curbing black money

Demonetisation will help curb unaccounted money and flush out black money ahead of elections. It would also put an end to fake currency notes

It will help us assess the size of the black economy. The RBI knows from its books how much currency has been issued. Let’s say it is Rs 100 billion. If half of that in the form of high denomination notes is not replaced by December 30, we know that amount of black money has ceased to circulate. That’s the gain to the economy

New denominations

New Rs 500 and Rs 2000 notes are to be issued now. In what other denominations can banknotes and coins be issued?

The Reserve Bank can issue banknotes in the denominations of Rs 5000 and Rs 10000, or any other denomination that the Central Government may specify. However, there cannot be banknotes in denominations higher than Rs 10000. Coins can be issued up Rs 1000.

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