30 days of demonetisation: Former RBI governors get candid on currency ban

On November 8, 2016 India cracked a whip on black money and counterfeit currency by legalizing the higher denomination currency notes. Since 8 Nov, the country has been debating the pros and the cons of the demonetisation move. 

Here is how former RBI ex-governors' take on demonitisation. Given below are excerpts of lectures/ coloums of RBI ex-governors on demonetisation.     

Raghuram Rajan at 20th Lalit Doshi Memorial lecture
I am not quite sure if what you meant is demonetise the old notes and introduce new notes instead. In the past demonetisation has been thought off as a way of getting black money out of circulation. Because people then have to come and say "how do I have this ten crores in cash sitting in my safe" and they have to explain where they got the money from. It is often cited as a solution. Unfortunately, my sense is the clever find ways around it.  They find ways to divide up their hoard in to many smaller pieces. You do find that people who haven't thought of a way to convert black to white, throw it into the Hundi in some temples. I think there are ways around demonetization. It is not that easy to flush out the black money. Of course, a fair amount may be in the form of gold, therefore even harder to catch. I would focus more on the incentives to generate and retain black money. A lot of the incentives are on taxes.  

D. Subbarao  writes a column in Business Standard

The recent decision of the Government of India to delegalize high denomination currency was motivated, as per the press release issued by the Government to eliminate black money ‘which casts a long shadow of parallel economy on our real economy’ and to curb counterfeit currency, which is used to finance terrorism and drugs and as a conduit for money laundering.  The Government said that in place of the delegalized currency notes, it will introduce two notes in the denomination of 500 rupees and 2000 rupees, which will be distinctly different from the outgoing notes in size, design, colour and look. In a poor economy where bulk of the ‘last mile transactions’ are done in cash, a measure like this was bound to cause fear and panic, and also scarcity of legal currency as people hoard it for safety-net purposes. Anticipating this, the Government announced a host of measures to alleviate pain and hardship, including an opportunity to exchange up to Rs. 4000 of outlawed currency into legal currency, limiting cash withdrawals from banks and ATMs and to allow use of the delegalized currency for some emergency and urgent purposes for the first 72 hours after the measure came into effect.There is also an open offer to people to deposit delegalized currency in their bank accounts without any limit for par value up to 31 December 2016.

YV Reddy at a lecture at Mahesh Buch Memorial 
My interest in black money goes back to 1960. I was registering for PhD I wanted to take the subject black money in India for my thesis. My would be guide, Professor V.V. Ramanadham said that it would not be an appropriate subject for a PhD degree; there was no data available. I, therefore, changed the subject to monopoly and concentration of economic power in India. I worked for three years on the subject and I had to change that subject also for a variety of reasons.At a policy level, I came into contact with the issue of black money when we were going through the balance of payment crisis in 1991. India development bonds were floated to obtain foreign exchange from non-residents to help us tide over their crisis. At that time, there was a consensus and control systems that were prevalent before 1991 would be dismantled. It was the general understanding that there would be a regime shift in the policies away from a system that provided incentives to accumulate wealth outside India. The country was also desperately in need of foreign exchange to get over the crisis. Amnesty was granted under some conditions. General understanding at that time was that this dispensation of Amnesty was an extraordinary and one time measure. The IMF team which was negotiating with us its support was not confident that the bond issue will succeed even with amnesty, because at that time one of the reasons of the crisis was withdrawal of NRI deposits. We felt that NRIs confidence in our economy will be restored with reforms initiated, and they will put in money without waiting for formal upgrade by rating agencies. The returns for them were attractive but not excessive.

Bimal Jalan in an interview to Economic Times
It is very positive and good for us in terms of what the intention is. And over a period of time as I think he also mentioned that it will be easy to see what else needs to be done to make it available, make it accessible to the people who do not have bank account and let us hope it works out. The most crucial issue at the moment is how to increase the spread in the banking system that is the most crucial issue. The second related most important issue is that in rural areas or in semi-urban area where there are no banks accounts for the poor or for the agriculturists and, then what is to be done with their notes if they do not have a bank account.

C Rangarajan to Economic Times
The government’s move to withdraw Rs 500 and Rs 1,000 notes is a standard prescription in extinguishing unaccounted money. This has been tried in the past. But the government (this time) had three targets: those who accumulated money, who issue fake currency and those financing terrorism, the last two being of different nature. But as far as black money is concerned, this measure is a step towards reducing black money or unaccounted money from the system. It will affect the retail trade as most of the transactions are done using cash. There are some other sectors in the economy like real estate, jewellery where cash has become a major player for transaction. Those will undergo a fundamental change.