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Concern over India’s decision to withdraw old currency notes

India's central bank's recent decision to withdraw notes printed before 2005 has caused some uncertainty and unhappiness in the country.

MUMBAI: India's central bank's recent decision to withdraw notes printed before 2005 has caused some uncertainty and unhappiness in the country.

Those without bank accounts are concerned that they may not be able to change their old notes, while opposition parties argue the move may only worsen the problem it intends to fix.

The move is aimed at curbing forged notes and takes a step towards circulating new notes with improved security features.

But the Reserve Bank of India's (RBI) decision to withdraw currency notes issued before 2005 has led to fears that old notes would be deemed illegal.

Siddharth Mandleywala , fund manager at Concept Securities Pte Ltd, said: “Initially, after the announcement, people panicked. There was a hue and cry, particularly on social networking sites, Whatsapp, Facebook, Twitter. But then later, the RBI clarified its intentions. So I think there is not much panic seen now.”

RBI has clarified that notes issued before 2005 will continue to be legal tender until March 31, after which holders will have to exchange the currency with banks.

But traders, who generally hoard large amounts of cash, worry about banks' readiness to cooperate in this process.

Ajoy Bhattacharya, former president of the Southern Gujarat Chamber of Commerce and Industries, said: “This will curb hoarding of money in rural areas and also bring out black money. But the concern is whether banks will cooperate with people who want to exchange notes.

“There are about four to five million people in Surat and I doubt banks will exchange money for them.”

Opposition parties have also highlighted that the move will hit the poor who do not have bank accounts and who may have a tough time exchanging notes.

They also argue that the move - which is also meant to tackle black money or unaccounted cash - will only worsen the issue, because those with enough resources will still be easily able to convert the black money into new notes.

Meenakshi Lekhi, a BJP spokesperson, said: “The latest gimmick of the Finance Ministry's demonetisation of currency notes before 2005 is basically an attempt to obfuscate the issue of black money."

India's underground economy is estimated to account for about 50 per cent of its gross domestic product, which explains why the central bank is keen to tackle the problem. But with the large scale of exchanges expected, this routine exercise practised across central banks all over the world may not prove to be as simple as intended. 

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