History of currency ban in India
Taking the nation by surprise, Indian Prime Minister Narendra Modi on 8th November, 2016 night announced demonetization of Rs. 1000 and Rs. 500 notes with effect from midnight. Major reasons behind this action are to control black money, fake currency and corruption.
The sudden move to demonetise Rs 500 and Rs 1,000 currency notes is not new. India has pulled selected denominations of its currency twice before. Rs 1,000 and higher denomination notes were first demonetise in January 1946 and again in 1978.
The highest denomination note ever printed by the Reserve Bank of India(RBI) was the Rs 10,000 note in 1938 and again in 1954. But these notes were demonetise in January 1946 and again in January 1978, according to Reserve Bank of India(RBI) data.
In January, 1946 (a year and a half before the country won independence from the British), first time the Rs. 1000, Rs. 5000 and Rs. 10000 were banned by the British Government. The Rs10,000 notes were the largest currency denomination ever printed by the Reserve Bank of India(RBI), introduced for the first time in 1938.
Again in 1977, the Janata Party coalition government lead by Morarji Desai came into power. The ruling party instated the High Denomination Bank Notes (Demonetisation) Act on Jan. 16, 1978 that deemed the Rs1,000, Rs5,000 and Rs10,000 notes illegal for the second time. But, RBI governor I.G. Patel did not support the decision of currency ban by government.
Indian Prime Minister Narendra Modi‘s measure mirrors Morarji Desai’s except the one thins that this time he has the backing of his RBI governor, Urjit Patel. But it doesn’t mean that all are supporting this decision. Economists doubt the impact of currency ban decision.
“That’s because people don’t stack black money in cash. Rather, they stash it in undisclosed accounts in Swiss Banks,” said Abhiroop Sarkar(a professor at the Indian Statistical Institute). “So the demonetization won’t affect the biggest fish.”