How Modi govt pulled off a rupee shake-up with absolute secrecy

With a shroud of secrecy around the decision, most of the nation was caught unawares

At a time when many Indians were on Tuesday evening glued to the contest thousands of miles away between Hillary Clinton and Donald Trump for the US Presidency, Prime Minister Narendra Modi chose to catch the nation by surprise. He announced the demonetisation of the existing Rs 500 and 1,000 currency notes with effect from midnight – a few hours from the announcement – as part of his government’s fight against black money.

The prime minister told the nation that the Reserve Bank of India would be printing newly designed Rs 500 notes and introduce Rs 2,000 ones, which would become available subsequently. However, as details trickled in on how, where, when and to what extent they could exchange their old notes for the new ones, or withdraw the new currency notes, the anxieties of the common people only seemed to increase.

The move was kept under wraps so effectively that, according to reports, none of the banks — not even the powerful heads of the biggest state-owned and private banks — were aware of the decision.

So, how did the Modi government execute its surprise move?

In the works for six months

As reported earlier quoting sources involved in the exercise, while the decision to demonetise the old currency notes was taken in early May this year, it was implemented through a process that took six months to come to fruition. The proposal received Modi's go-ahead during a meeting between officials of the Prime Minister’s Office (PMO) and the finance ministry.

Secrecy was the key

In fact, all discussions and decisions in the early days of the proposal are said to have been verbal and unofficial. According to an ETNow report, the notification regarding the move was printed in secrecy in the same press where the Union Budget papers are printed. The purpose of the secrecy surrounding the move was simple, the stated purpose of the decision is to curb black money and any leak would have tipped off unaccounted cash holders.

"Maintaining secrecy was of paramount importance as any leakage of this information would have rendered this proposal ineffective. For this to work, it was imperative to catch unaccounted cash holders by surprise," an official told the Business Standard.

To ensure this, very few bureaucrats and officials in the PMO, the North Block and Mint Road knew of the plan in its entirety. These were the senior-most and the most trusted, including some secretaries and deputy governors. For other officials, all information was shared on a need-to-know basis.

Only 10 people knew

Only ten people had been aware of the decision throughout most of the six-month period it took to implement it. One of them was former Reserve Bank of India governor Raghuram Rajan.

Early preparations

As the RBI got down to printing the new notes, it also ramped up production of notes of smaller denominations. Further, banks were also told by the RBI, through a circular issued on May 5, to dispense more Rs 100 notes from their respective ATMs across the nation.

Even Modi's Cabinet was kept out of the loop

The ETNow report added that Modi’s Cabinet, too, was not aware of the move and his team was informed of what was to come only shortly before Tuesday’s announcement. At the Cabinet meeting before the announcement, ministers were told to keep their mobile phones outside the room and reports suggest they were not allowed to leave till the decision had been broadcast.