RBI role in note ban

Raghuram Rajan's observations make it abundantly clear that the RBI was associating with the groundwork for demonetisation from February 2016

“The demonetisation puzzle” read with Subhomoy Bhattacharjee’s “The backroom story: How it all played out” (November 7) demystifies the note ban last year. For those who have been following the happenings since November 8, 2016 and were not able to solve the “puzzle” yet, can find enough clues to move towards reasonably acceptable answers for questions like why note ban was considered as an option to fight black money, why things went wrong midway, if they really did, and what was the role of the Reserve Bank of India (RBI) in providing backward and forward linkages in implementing the project in its capacity as advisor to government of India and currency manager.

Raghuram Rajan is known for his clarity of thoughts and expression on monetary policy and central banking matters. His faultless book, “Fault Lines”, and the recently released book “I Do What I Do” carry enough evidence to prove this, if recorded evidence was necessary. But there has been an obvious deviation. Rajan’s one-year silence following his exit from Mint Road and sudden reappearance and expression of views on the functioning of the RBI have confused even his fans. His cautious observation about short-term economic costs outweighing long-term benefits of demonetisation, made almost one year after the event, was apt. As the opinion against note ban was given orally and a document on demonetisation prepared by the RBI approved by Rajan reportedly exists (not in public domain), enough damage has been done to the dwindling reputation of the central bank.

Rajan’s observations make it abundantly clear that the RBI was associating with the groundwork for demonetisation from February 2016. Knowingly or unknowingly, he has exposed himself to the allegation of not getting himself involved in preparing the RBI adequately to implement note ban, once a decision was taken by the government.

M G Warrier   Thiruvananthapuram

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