RBI: Currency notes issued before 2005 to be withdrawn from circulation

The Reserve Bank of India (RBI) has decided to withdraw all currency notes issued prior to 2005, including Rs 500 and Rs 1,000 denominations. As per the RBI, pre-2005 notes can be identified easily as these notes do not have the year of printing mentioned on them. The year of printing in a small font is visible at the middle of the bottom row in notes issued after 2005.
After March 31, 2014, RBI will completely withdraw all bank notes from circulation issued prior to 2005. From April 1, 2014, the public will be required to approach banks for exchanging these notes. The facility will be open in all banks till further notice.
As per the apex bank, from July 1, the non-customers who want to exchange more than 10 pieces of Rs.500 and Rs.1, 000 notes will have to provide proof of identity and residence to the bank branch in which she/he wants to exchange the notes.
However, there is no need to panic as the central bank has assured that these notes will continue to be legal tender even after March 2014, though people are advised to initiate the process of exchanging notes at bank branches as per their convenience.
At present, currency notes in denominations of Rs 5, Rs 10, Rs 20, Rs 50, Rs 100, Rs 500 and Rs 1,000 are issued.

Why RBI has decided to withdraw pre-2005 currency notes?

The key reason is security. As per RBI, pre-2005 notes have fewer security features as compared to newer currency notes. The more the security features on a currency, the lesser will be the chances of its counterfeiting.
Reasons for withdrawing pre-2005 notes from circulation:

1. Security – pre-2005 notes have fewer security features as compared to 2005 and post-2005 notes. Thus, lesser will be the chances of its counterfeiting newer currency notes. Most fake currency notes being pumped in Indian economy were copies of pre-2005 notes.
2. Flushing out black money – The spillover effect of the RBI’s decision will be to flush out black money. Money has value only as long as it is a medium of exchange and store of value. It loses its value when it ceases to be a medium of exchange. 
3. A disincentive for cash hoarders – With the RBI’s announcement, currency hoarders will be left with no option but to liquidate their unaccounted holdings by spending or exchanging them. Thus, this is a well thought out exercise by the RBI to capture the “money flows’’ into the system and also help flush out counterfeit notes.
4. International standard practice – It is an international standard practice to remove old series notes. 

Will all notes before 2005 stop being a legal tender/ money after April 1, 2014? 

No. The pre-2005 currency notes will remain as legal tender (thus, valid for all monetary transactions) till any further notice by RBI regarding this. However, it is expected that some day in the future, RBI may declassify pre-2005 currency notes as legal tender.

How can one exchange pre-2005 currency notes?

One c an simply walk into any bank’s branch in India and exchange these notes over the counter. Also, RBI would be coming out with a detailed procedure that banks in India will have to follow in this regard.
One can deposit the pre-2005 currency notes into his/ her bank account at bank branches or via the ATMs and then they will be automatically replaced.

For how long can one exchange the pre-2005 currency notes?

The pre-2005 currency notes can be exchanged even now, however, the special drive to exchange the pre-2005 currency notes with new notes will start by banks in India from April 1, 2014.

Has RBI set any limit on the number of pre-2005 currency notes that can be exchanged?

There is no such set limits by RBI in this regard as of yet. However, the standard norms in dealing with cash- like the requirement of PAN Card by an individual for any cash transaction of above Rs 50,000 will apply. Any transaction by above Rs 10 lakh will be reported to the Financial Intelligence Unit (FIU) under the Prevention of Money Laundering Act. If one has 20-30 pre-2005 currency notes or even more, they can be changed over the counter.

Does one needs any documents for exchanging the pre-2005 currency notes with the new ones?

From July 1, 2014, any person who comes to a bank for exchanging more than 10 pieces of Rs. 500 and Rs. 1,000 notes will have to produce a proof of identity and residence to the bank . If (s)he is an account holder of the bank, there is no need of any such proof. RBI will be soon coming out with a detailed procedure in this regard.
The standard norms in dealing with cash- like the requirement of PAN Card by an individual for any cash transaction of above Rs 50,000 will apply. Any transaction by above Rs 10 lakh will be reported to the Financial Intelligence Unit (FIU) under the Prevention of Money Laundering Act. If one has 20-30 pre-2005 currency notes or even more, they can be changed over the counter.

If one finds that the pre-2005 currency note that one wants to exchange is a fake note, what will happen?

If such a case happens then the Banks will follow regular RBI guidelines i.e. if there are 5 or more fake notes in one transaction, an FIR has to be lodged.

How to identify pre-2005 currency notes?

All notes printed since 2005 have the year of printing in the middle of the bottom strip on the reverse side (the side that doesn’t have the Gandhiji pic). All pre-2005 notes can be identified easily as these notes do not have the year of printing mentioned on them. 

A Rs 500/- Currency note issued after 2005 (With year of Printing)

A pre-2005 Rs 500/- Bank Note (Without year of Printing)

 
Note: The RBI had gone in for demonetization only once in 1978 when notes of Rs. 1000, Rs. 5000 and Rs. 10,000 were withdrawn. Afterwards, in 1980 a complete new set of notes were brought followed by October 1987 when a new note a 500 was introduced.

Month: Current Affairs - January, 2014