One good thing about demonetisation: Temporary freedom from fakes

The demonetisation of currency of Rs1,000 and Rs500 may not destroy India’s scourge of black money; most of it, as economists have pointed out, have already been converted into land and gold assets that cannot be demonetised, or spirited abroad.

The sudden decision to trash notes of higher denomination has only punished those who were waiting for the right opportunity to convert their cash into property, expensive art, valuable metals and precious stones. Will this decision stop tax dodgers and criminals from hoarding black money in the future? Economists are not sure; it may scare them for some time but fresh hoarding will begin as soon as the Rs2,000 notes are out. This may also push owners of illicit cash to exchange it for gold, pushing up the price of the metal. This could lead to another set of problems – higher duties on import of gold and smuggling. And since India is, along with China, the biggest user of the metal, this could lead to an increase in its price worldwide.

So it remains vague whether the demonetisation will succeed in its main aim - the crippling of India’s illegal and untaxed economy. But people who lived in dread of being found in possession of a fake note are relieved by the demonetised notes.

Government data suggests that Fake Indian Currency Notes (FICN) of a value of about Rs400 crore were circulating in the money market . Between 2011 and 2015, law enforcement agencies seized 2.6 million FICN worth nearly Rs168 crore. It is estimated that there are 250 FICN for every one million notes and only a third of the counterfeit notes are intercepted and destroyed. This made it highly probable that you could encounter a fake note.

A few years ago, a friend who worked in an export house, was told that one of the Rs500 notes that he had deposited at the bank for a demand draft was counterfeit. He explained that his wife had collected the note from an Automated Teller Machine. “They wanted to keep the note but I insisted that they return it,” said the executive.

The bank staff knew him and allowed him to collect the note after it was marked as counterfeit. The matter ended there. Others who ended up with fake notes were not so lucky. The usual procedure in such cases is that after collecting the counterfeit, the bank issues a receipt that has to be marked with the customer’s signature. If the number of notes is more, the police are intimated about the fake notes and a criminal case – a first information report (FIR) – is registered. There is an investigation and the bank account holder will be interrogated by the police. The bank will not return the note and you lose the money. The friend, too, lost the money, but escaped the legal tangle.

India’s laws against fake notes criminalises both counterfeit makers as well as users, many of who could have been innocent possessors of the notes. Sections 489 B of the Indian Penal Code makes the use of counterfeit notes a criminal offence, punishable by a jail term or a fine. While the accused can argue that he or she did not know, or had no reason to believe, that they were using a fake note, the police could send the matter to a magistrate. “It is up to the defence (lawyer representing the bank customer) to convince the magistrate that the accused did not know that the note was fake,” said Vivian D’Souza, a lawyer

“Fake notes were a constant worry,” said D’souza, a lawyer. “The scrapping of higher denominations will certainly solve this problem. That is one of the reasons why people are patiently bearing with the problems is this.”

It could be just a few months before counterfeiters duplicate the design of the new notes that will be issued, but till then there is no worry of a counterfeit in your wallet.