Why some Indians are still holding on to Rs 500 and Rs 1,000 demonetised notes
In the recent past, several incidents of people claiming to convert demonetised currency notes to new notes being caught have come to the fore. Many cases of demonetised notes being recovered have also been reported.
The Aligarh police recently seized currency notes worth Rs 50 lakh after raiding a hotel in the Bannadevi area of the city. The police also arrested five people in connection with the case. Those arrested included the spice trader to whom the money allegedly belonged. He reportedly agreed to pay Rs 5 lakh to a property dealer known to him for exchanging the banned notes with new ones.
Prior to this, currency worth Rs 96.62 crore - all in demonetised Rs 500 and Rs 1,000 notes - was recovered from Kanpur. This turned out to be the biggest ever haul of banned notes and even with the help of machines, it took two days to count the notes. Right before the Kanpur haul, a builder in Meerut was caught with currency worth Rs 25 crore. In all three cases people were ready to offer new notes for old ones.
Despite the fact that the Reserve Bank of India (RBI) has stopped accepting old notes, and keeping old notes beyond a certain limit is a crime serious enough to lead to jail, people are taking the risk. Investigating agencies are surprised over what the money exchangers are doing with the old currency notes.
According to information, this practice is in vogue because of a small mistake of the finance ministry. A deal with the Nepal government and banks in the Himalayan country with regards to exchange of old Indian notes is still in limbo. Despite more than a year having passed since demonetisation, India has not been able to reach a truck with Nepal over what's to be done with the notes in Nepal.
This is the reason why Nepal refused to accept the new Rs 500 and Rs 2,000 notes from India.
The Nepal route to exchange old currency
There is no information on how much Indian currency is running in Nepal. It is but obvious that whenever this money is rerouted to India, the RBI will have to accept the entire amount. It is because of this reason that banned Indian notes are easily acceptable in Nepal. The casinos and dance bars in the neighbouring country especially are taking the notes with a minor cut without any hassles.
There is no need to go looking for an agent in Nepal to get the job done. One can simply walk into any casino and get the job done. Indian tourists are visiting Nepalese casinos along with this currency. One can get 800 Nepali rupees in exchange for a new 500 rupee Indian note, while for an old Rs 500 note, one can get 400 Nepali notes. One can buy tokens at Nepali casinos by paying in Indian currency and earn Nepali currency in exchange. This practice in itself is legal.
In Kathmandu alone, there are over 2,000 legal and illegal dance bars.
Nepal has still not started the process of returning the banned currency. The RBI and Nepal Rastra Bank haven't yet reached a consensus on the modalities of returning old Indian currency.
However, this practice can change only if someone invests a huge amount of money in Nepali casinos.
The question that arises is what casinos and dance bars are going to do with the banned Indian notes. A casino owner said that since the Indian government hasn't taken back the old notes from Nepal, whenever that process starts they will also give back the money to the RBI. This process is likely to be very profitable for Nepali private banks.