Note ban failed to curb the menace of counterfeit currency, indicates RBI's Annual Report

Note ban failed to curb the menace of counterfeit currency, indicates RBI's Annual Report


Although containing fake notes in circulation was one of the objectives behind demonetisation when it was undertaken in 2016, recent data from the Reserve Bank of India (RBI) reveals that fake counterparts of some denominations grew during 2017-18 vis-à-vis the previous year.

The recently released Annual Report for 2017-18 of the RBI shows that the total number of pieces of counterfeit notes of Rs. 2000/- denomination, which was detected in the banking system, has jumped up from merely 638 to 17,929 between the financial years 2016-17 and 2017-18 viz. by a massive 2710.19 percent. The Rs. 2000/- denomination currency note was introduced only after 8 November, 2016 so as to fill the vacuum created by the demonetisation of the currency note of denominations Rs. 500/- and Rs. 1000/-.  

In terms of volume, however, the total number of pieces of Rs. 2000/- denomination notes in circulation was 3,285 million in March 2017, which increased to 3,363 million in March 2018 viz. an increase by 2.37 percent.   

The total number of pieces of counterfeit notes of Rs. 500/- (new design) denomination, which was observed in the banking system, climbed up from 199 to 9,892 between 2016-17 and 2017-18 viz. by an enormous 4870.85 percent.

Apart from the currency note of Rs. 2000/- denomination, an increase in the number of pieces of counterfeit currency could also be witnessed for denominations Rs. 20, Rs. 50, Rs. 100 and Rs. 500 (new design) between 2016-17 and 2017-18. In 2017-18, 79 forged pieces of the newly introduced Rs. 200 note was also detected in the banking system. Kindly check table-1.

Table 1: Denomination-wise counterfeit notes detected in the banking system (April-March), (Number of pieces)

Table 1 RBI annual report 
 
Source: Chapter VIII: Currency Management, Annual Report for 2017-18, Reserve Bank of India, please click here to access
    
The total number of pieces of counterfeit notes of various denominations fell from nearly 7.62 lakhs in 2016-17 to 5.23 lakhs in 2017-18. Please consult table-1.

Table 2: Number of counterfeit notes detected (April-March), (Number of pieces)

Table 2 RBI 
 
Source: Chapter VIII: Currency Management, Annual Report for 2017-18, Reserve Bank of India, please click here to access
 

The latest Annual Report of the RBI says that out of the total counterfeit currency notes detected, the share of fake notes detected at the RBI was 36.1 percent in 2017-18 as compared to 4.3 percent during 2016-17. This happened because of processing of large volume of Specified Bank Notes (SBNs) [viz. a bank note of the denominational value of Rs. 500/- or Rs. 1000/- of the series existing on or before 8th November, 2016] withdrawn from circulation. Please check table-2 for details.

RBI’s liabilities and income

The RBI's 2017-18 Annual Report states that the total value of SBNs in circulation as on 8th November, 2016, post verification and reconciliation, stood at Rs. 15,417.93 billion. However, the total value of SBNs returned from circulation is Rs. 15,310.73 billion. Thus, it is being said that roughly 99.3 percent of the demonetised currency notes of Rs. 500/- and Rs. 1000/- denominations was deposited in the banks. It means that unlike what was assumed earlier, only a tiny fraction of the SBNs cease to be liabilities of the RBI following the enactment of the SBN (Cessation of Liabilities) Act (2017).
 
Table 3: RBI Income Statement for the year ended June 2018
 
Table 3 RBI income liability 

Source: Chapter XII: The Reserve Bank's Accounts for 2017-18, Annual Report for 2017-18, Reserve Bank of India, please click here to access

The RBI's income statement for the year ended June 2018 shows that its income has gone up from Rs. 618.18 billion in 2016-17 (viz. during the year of demonetisation) to Rs. 782.81 billion in 2017-18, which is a rise by Rs. 164.63 billion. The expenditure of RBI has declined from Rs. 311.55 billion in 2016-17 to Rs. 282.77 billion in 2017-18. Under expenditure, the cost of printing notes has fallen down from Rs. 79.65 billion in 2016-17 to Rs. 49.12 billion in 2017-18. The surplus payable to the Central government by the RBI has grown from Rs. 306.59 billion in 2016-17 to Rs. 400.00 billion in 2017-18, which is an increase by Rs. 93.41 billion. Kindly refer to table-3.
 
It is worth noting that the RBI's income statement for the year ended June 2017 shows that its income was Rs. 808.7 billion in 2015-16 (viz. a year prior to 2016 when demonetisation happened). The expenditure of RBI was Rs. 149.90 billion in 2015-16. Under expenditure, the cost of printing notes was Rs. 34.21 billion in 2015-16, which is almost half the expenditure incurred on printing notes in 2016-17. The surplus payable to the Central government by the RBI was Rs. 658.76 billion in 2015-16, which is more than double the surplus payable to the Central government by it in 2016-17 -- the year demonetisation was undertaken.

References:

Annual Report for 2017-18, Reserve Bank of India, please click here to access 

Chapter VIII: Currency Management, Annual Report for 2017-18, Reserve Bank of India, please click here to access

Chapter XII: The Reserve Bank's Accounts for 2017-18, Annual Report for 2017-18, Reserve Bank of India, please click here to access 

Chapter XI: The Reserve Bank’s Accounts for 2016-17, Annual Report for 2016-17, Reserve Bank of India, please click here to access 
 
Frequently Asked Questions: Withdrawal of Legal Tender Character of the Old Bank Notes in the denominations of Rs. 500 and Rs. 1000 and The Specified Bank Notes (Cessation of Liabilities) Act 2017 & Specified Bank Notes (Deposit of Confiscated Notes) Rules 2017, (Updated as on May 26, 2017), please click here to access 

The Specified Bank Notes (Cessation of Liabilities) Act (2017), please click here to access

Too few FIRs in Delhi & Gujarat for fake currency notes seized during 2016, indicates NCRB data, News alert by Inclusive Media for Change dated 8 December, 2017, please click here to access 

Demonetisation achieved objectives quite substantially: Government, The Economic Times, 29 August, 2018, please click here to access 
 
 
Image Courtesy: Inclusive Media for Change/ Shambhu Ghatak



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