An embarrassment of riches: 

An embarrassment of riches: 

Context:

The finance minister, in a written reply to the Rajya Sabha on July 25, said that the bank is in the process of reconciling the notes to obviate any errors.

Key points:

• According to media reports, by early January 2017, more than 90 per cent of the demonetised currency notes had returned to the banks.
• RBI’s data on currency in circulation with the public implies that 98.8 per cent of the notes had been returned.
• It was reported in November 2016 itself that all the notes surrendered are being shredded and given to a company in Kerala to be converted into briquettes.
• If this process has been going on, then recounting is meaningless and reconciliation impossible.
• There is a case pending in the Supreme Court asking that one more chance be given to change old notes for new ones to those who still have some demonetised notes left with them.
• The government has opposed this on the ground that this relaxation would lead to the failure of the entire scheme of unearthing black money via demonetisation

What can be achieved by recounting the remaining notes which are not shredded?

• Recounting seems to be posing an acute problem since the RBI governor, appearing before the Rajya Sabha Committee on July 13, said that counting is going on and information will be provided at the earliest.
• The RBI had 59 machines and had hired seven more and has floated tender to buy more machines.
• According to reports, the delay is also due to notes from Nepal and those lying with the cooperative banks, which were earlier not allowed to deposit them with the RBI.
• By January 13, only Rs 18,000 crore worth of notes had not been returned.
• Reports indicate that the cooperative banks have Rs 8,000 crore of the old notes which they can now return.
• Further, between January 1 and March 31, certain specified category of people could deposit their old notes.

Data on notes:

Data on notes returned and the new notes issued was regularly given up to December 12, 2016. This could have been extended up to March 31, 2017 which was the last date for NRIs and some specified category of people to return the notes they could not deposit earlier.

How it is possible that more notes are returned than were issued?

• Only if the fake currency floating around has been accepted by the banks. There has been speculation that counterfeit currency in large amounts was also returned to the banks and they could not control/check that due to the extraordinary pressure of work.
• Collusion is also possible. It is not going to be easy to check which banks or their branches colluded in accepting the counterfeit notes since currency was flooding at an extraordinary rate.

How much of the counterfeit currency was in circulation?

• According to a government commissioned study, reported in Parliament, there was Rs 400 crore of counterfeit currency in circulation.
• The RBI in its annual reports mentions the amount of fake currency notes caught every year.