RBI Extends Pre-2005 Currency Note Exchange Deadline to Jan 2015

On January 24^th, 2014 Reserve Bank of India had announced that they will completely withdraw from circulation all banknotes of all denominations issued prior to 2005 and all citizens who have pre-2005 currency notes will get it exchanged from banks. The deadline for same was set for March 31^st, 2014.

Now, RBI has decided that the deadline for exchange of these notes will be extended till January 1^st 2015. According to the official press release published yesterday, they have clarified that public can continue to freely use these notes for any transaction and can unhesitatingly receive these notes in payment, as all such notes continue to remain legal tender.

It is interesting that RBI has taken such a decision, because they had taken necessary measures that even after the prior deadline (April 1, 2014), the pre-2005 notes were still legal tenders and could be exchanged from the banks. Only aspect was that they could not be used for external financial transactions.

RBI has also not given any reason whatsoever for extending the deadline!

Our View

When RBI had announced the decision, we had hailed it because it would have been a master stroke to curb the black money circulation in the system. As per RBI data, as of December 2005, there were 3,785 crore pieces of banknotes in circulation, worth about Rs 4 lakh crore.

In our view, 3 months was good enough time for general public to exchange their pre-2005 bank notes. Only black money hoarders would have been affected by this decision

Unfortunately, with RBI extending the deadline, black money hoarders now have ample time to dispose off their illegal notes.

As RBI has not given any reasons for the extension of deadline, we do not really know what prompted them to do so.

I, for one,  do not buy the reason that it is because the deadline of 3 months was short and could have been an inconvenience to general public. Any citizen who has white money, could have easily exchanged the notes in 3 month time frame.

So, what was the real reason behind the extension? Political pressure?

What do you think?