Extinguishing RBI’s liabilities unlikely to bring much benefit

India’s government has moved to strip the legal status of banknotes affected by demonetisation that are still in circulation. This would have the result of extinguishing some of the RBI’s liabilities and open up the possibility of the RBI making a one-off cash transfer to the government. But any transfer would be small and could fuel concerns over the independence of the central bank. In all, the move would likely do more harm than good.

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