Demonetisation – A Game Designed to be Rigged?

Since the day people started queuing up at banks to exchange their own money - thanks to the PM’s announcement of demonetisation – newspapers and TV channels have been awash with reports of individuals being caught with brand new currency notes worth lakhs and crores. In some instances, the individuals have confessed to bribing bank employees, for exchanging old notes above the legal limits. In many instances, the investigators simply could not find out - in the absence of any confessions- from where the fraudsters managed to get such large amounts of new currency.

The untraceability of the new currency that is in police custody, raises a question on the role of RBI, and by extension the role of Government in this mess.

Let us see how.

In theory RBI should be able to track each and every currency note it has ever issued - at least as far as the bank branches to which the currency first reaches, from currency chests. Currency chests, are where RBI sends money from its printing presses for further distribution. There are little more than 4000 currency chests in India – in control of RBI and maintained by some major banks. From these currency chests, currency gets redistributed to 18,0000 odd bank branches, spread throughout India.

Let us say, RBI issues a currency note ‘X’ with a particular serial number to Bank A. Further, let us suppose that an employee from the bank fraudulently exchanges ‘X’ for an old currency of a Mr.B, who is a black money hoarder. Justice prevails, and Mr.B is caught red handed carrying the currency note ‘X’ illegally. From there, it should be a simple task - by tracing back ‘X’ to which ever bank branch RBI issued it to – to find out employees of which bank are involved in this crime.

But - except in few instances, like the case of Axis Bank - lot of the new money caught could not be traced back to any particular bank. According to police, unless the culprit confesses, it is not possible to know from which bank the money has come.

There can only two reasons for this untraceability?

One, the new currency may have been taken directly from RBI’s high security printing presses themselves, i.e., even before the currency reached RBI’s currency chests.

The second reason could be that RBI failed to maintain a register of all the currency notes, and their serial numbers that it had issued to the individual bank branches. That makes it impossible for anyone to trace the currency back to the bank branches.

Both these scenarios are possible.

According to Thomas Franco, senior vice president of All India Bank Officers Confederation, new currency may have been diverted from the printing presses themselves.

It is also found that while RBI maintained the register of serial numbers of all the currency notes that it sent to the currency chests – it did not do the same when this currency is further distributed from the currency chests to the bank branches.

There is no obvious reason, why RBI has decided not to keep track of the currency beyond the currency chests. Given the motive of demonetization – to eradicate black money – one would think that RBI would want to makes sure that new currency is not diverted, from currency chest or the bank branches, to black money hoarders.

The one possible reason is - if one were to rule out monumental stupidity on part of RBI officials – that the demonetisation game, from the word go, was designed to fail in its professed goal of neutralizing black money. Is it then a game designed to win political points for Mr. Modi, without hurting his backers, whose black money financed his journey to the top?

Disclaimer: The views expressed here are the author's personal views, and do not necessarily represent the views of Newsclick