Should we lament the death of the Rs 2,000 note? There are anxieties that shroud this move. Can it invite more illegal activity, like in the first phase of demonetisation? Will the government be effective to control the nefarious tendencies in the market and in the economy? To understand these anxieties, we must first look at the two phases of demonetisation to see whether such questions are valid or not.
We will probably not lament the demise of the Rs 2,000 notes. As the Government of India (GoI) claimed, it was not the most popular note. It was inconvenient to get changed into smaller currency notes. But the GoI had launched this note in 2016 as an antidote to the holy trinity: counterfeiting, black marketing and hoarding. Morality and intrigue were thickly laden upon the launch of these new notes. Demonetisation was hailed as an act of ‘nationalism’ against dishonest men and their means.
The state appealed to the public to trust in its institutions and exchange their older monies for newer notes of Rs 500 and Rs 2,000. Though couched as a public appeal, it was an assertion of a naïve belief that the government could have full control over the operations of the national economy. Soon enough, some media outlets went so far as to claim these Rs 2,000 notes had embedded nano-chips to detect their location and prevent criminal activities. As the rumour mills ran rife, the GoI further announced a new feature of this note: it was almost unforgeable. The new notes were to exhibit the use of angular bleed lines and exploding numbers in these notes to protect them against counterfeiting.
But these Rs 2,000 notes fell far short of the dazzling promises. Not only were they in scarce supply with the ATMs being recalibrated, but also, they recorded 638 forgeries in the wake of their inception. Many of these forgeries were crude as the note remained elusive and unfamiliar to the Indian public. News soon caught up of miscreants taking advantage of the unfamiliarity of the note. Some men from Bangalore were reported to have made photocopies of the Rs 2,000 notes to pass off in wine and beer shops with added glitter to make them appear real. With the copier machine, dispensing coloured copies at the rate Rs 10, a minimum production cost could be invested to produce many counterfeits. In Uttar Pradesh, the police reported the ATMs of State Bank of India dispensing fake Rs 2,000 notes. The Reserve Bank of India, in 2019, alerted its banking officials and cash management officers responsible for ATM replenishments of counterfeit currencies in circulation with wrong spelling, ‘Resurve Bank of India’ on the left side of the obverse. The public wondered whether it was a typo until the Reserve Bank of India confirmed it was counterfeit.
Even at the time of its withdrawal, they were reported to have been counterfeited in a large number between 2020 and 2023. Much like the first phase of demonetisation, the reason for such counterfeiting was due to the illegal smuggling of these high valued notes from Pakistan and Bangladesh. MoUs were signed between governments of Nepal and Bangladesh and India to enforce stricter surveillance across the border. The banks in India now had stricter protocols to check the counterfeit notes as they were exchanged. Tragically the unwitting holder of these counterfeit notes would not get their credit worth.
As more people queued up to exchange their notes, the government relied on technology called the Note Sorting Machines to detect the counterfeit from the genuine notes. But should we view counterfeiting as only as a form of immorality? Can the machines dispense with the human interactions of the market? For counterfeiting is a tale of circulation as much as imitation. The unfamiliarity and ready acceptance of the counterfeit note by the unwitting public was probably due to the high promises unrolled by the Indian government back in 2016. Let us then turn to the circulation of the new notes.
When the ATMs ran short of cash in 2016, the queues at the banks grew longer, and tempers ran short. For the poor and daily-wage workers who could not afford to waste time in the queues of the bank, new private enterprises were spawned. Small shop owners, tea stall owners, mobile mechanics turned to touting and brokering a quick exchange of the now illegal older notes and the newer Rs 2,000 notes for a lower denomination note. They roamed before the branches of the banks, luring the poor, the impatient and the desperate, charging a commission that ranged from 20% to 30% of the amount given. The larger syndicates of brokers spiked their commission charges to 50%. Some of these illegal enterprises were tolerated by the government because they believed that the money was coming back to the banks. This seemed to suggest conflation of the informal and formal markets.
Ironically, this also operated against the commonplace idea of hoarding and black money. At a cultural level, black money suggests an immoral, tangible, hoard waiting to be disbursed. But black money is often redirected into other avenues of economy — redirected either to another location such as through hawalas or into other sectors such as real estates or into assets like gold within India. At its heart, the concepts of black money and hoarding privileges the sanctity of national economy and decline of public morality. But as Ajay Gandhi claims, black money is often rerouted into the national economic field, coursing through ‘social ties, relational obligations and transactional orders’.
If we consider the burgeoning of the black market of exchange for older and new Rs 2,000 notes in the first phase of demonetisation as its signifier, the second phase saw a disbursing of the notes in temples as authorised sites to receive anonymous donations. Meanwhile, the banks imposed a limit on the daily currency exchanged to Rs 20,000. Over the weekend of its announcement, gold and silver purchase in the country increased by about 20%. Most of these purchases were unsurprisingly through cash payments. Along with counterfeit money, smuggling of gold and silver had increased in past years. In February 2023, 4,151 cases of gold worth 1459.72 kg and 447 kg of silver was smuggled into India. The number of cabin crew and airport staff involved in these cases had risen from 14 in 2020-21 to 29 in 2023. This is what scholars on black money like Dev Kar call ‘round tripping’ where outflows of black money are frequently circulated into the country either through legal or illegal means.
Though the demonetisation of Rs 2,000 notes is expected to not affect the informal market, which comprise only 10.8% of the total notes, a spillover effect may be anticipated. The experts on real estate foresee an increase in land dealings and secondary market. They claim there might be a possibility that the builders may pass off this cash money to their vendors and contractors, operating in the informal market. The demonetisation of Rs 2,000 notes has already seen an increase in cash transactions at the petrol pumps and the purchases from local groceries, services in salons and gym memberships which may indicate a further spilling into the informal sphere.
Often the enforcement of a legislation, as we have learnt from our experience of demonetisation, spawns more illegal activities. The ‘deviant’ subculture among those taking to brokering in black markets, counterfeiting and smuggling, may be seen as instances of the legal and the illegal zones fades into each other, where ‘illegal’ as a category becomes increasingly nebulous. Ascribing morality to a crime is to miss the nuances through which illegal activities are acceptable to society. It also ignores the circuitous ways in which economy unfolds and operates where legal agents slide through the porous boundaries of legality.
The agency of the different actors participating in the money market cannot be suppressed through any act of legislation. It is for this reason, the control of the formal state over its subjects will always be limited and that illegality will be the other side of the coin, or the presence of which justifies the means of the state.
Sukhalata Sen is Assistant Professor of History at National Law School of India, University.