text: India witnessed a truly historic moment on November 8, 2016, when the government took the remarkable step of demonetizing Rs500 and Rs1000 notes. Prime Minister Narendra Modi, in his address to the nation, stated one of the reasons for this policy was to counter the rising menace of fake Indian currency notes.
  Counterfeiting money has been prevalent throughout history and is sometimes called the world’s “second oldest profession.” Traditional counterfeiters in most cases are individuals or a group who counterfeit money for their own profit. But during modern history, a new phenomenon appeared: states involved in counterfeiting the currency of enemy states to destabilize their economy. For example, during World War II, Hitler initiated “Operation Bernhard” and counterfeited British pounds. As a result Britain had to withdraw most of its currency notes.
  In India, the circulation of fake Indian currency notes (FICN) has been on the rise, according to the Reserve Bank of India’s (RBI) annual reports. The year 2014-2015 saw a steep rise, with 594,446 FICN detected, up from 488,273 in the year 2013-14. When it comes to the type of notes counterfeited in 2014-15, RBI data showed that counterfeited Rs500 notes were most common, with 273,923 recorded. Rs100 and Rs1000 notes were the second and third most counterfeited bills, respectively.
  The Financial Action Task Force (FATF) report of 2013 found that the Indian rupee was the ninth most counterfeited currency in terms of its value and stood third in terms of the number of FICN detected around the world. This is a grave concern to India and if not dealt with would have had serious implications as counterfeit currency can reduce the value of the currency and increase inflation.
  As reported by various sources, most counterfeit Indian currency notes are printed in Pakistan. From Pakistan, FICN are either moved directly into India or make their way through a network of other countries. Major transit points include India’s neighboring countries Nepal and Bangladesh. Dubai is another route that the traffickers use to smuggle the fake currency notes into India; other transit points include Thailand, Malaysia, and Sri Lanka. China is emerging as a new transit route (as indicated by reports about the seizure of fake Indian currency concealed in a shipping consignment en route from Pakistan to Nepal via Hong Kong).
  Nepal has been extensively used by traffickers because of the porous borders it shares with India. Every year, by far the largest number of counterfeit Indian currency notes is seized from Nepal. Bangladesh is another major transit route for counterfeit Indian currencies being trafficked from Pakistan. The Bangladeshi media has reported various instances when fake Indian notes were seized by their authorities; all the arrested smugglers have a direct link with Pakistan. Similarly, Pakistani nationals were involved in 48 percent of FICN cases in Thailand, Malaysia, Myanmar, and Sri Lanka. In 26 cases of seizures at international airports across Asia, 10 of the flights had originated from Pakistan and the others were connected flights.
  Sources from various governmental institutions, agencies, and international organizations back the accusations levied at Pakistan for the role of its Inter-Services Intelligence (ISI) in counterfeiting Indian currency. According to India’s Director of Revenue Intelligence (DRI), ISI has been instrumental in pumping counterfeit Indian notes into India through several countries. Often, ISI co-opts the Indian diaspora to send the FICN to India.
  India’s Ministry of External Affairs for the last decade has consistently shown concern over ISI and its involvement in printing and distributing FICN. DRI sources have also voiced concern over the high quality of FICN, which makes them difficult to distinguish from real notes. Media reports from Bangladesh claim that the fake notes are printed at government presses in Karachi, Lahore, Peshawar, and Quetta with the support of ISI.
  Some of the important revelations that indicate ISI’s role in FICN have come from David Headley, who was convicted for his role in the 26/11 Mumbai attacks. In his statement, Headley mentioned that Major Iqbal, who was his ISI handler, gave him FICN for circulation and use in India. Another breakthrough in allegations of direct involvement by Pakistan authorities and ISI in FICN was the arrest of Syed Abdul Karim Tunda in 2013 at the India-Nepal border. According to the police, Tunda received several consignments of FICN arranged by an ISI brigadier. He also revealed the key names of people involved in the circulation of FICN through Indo-Nepal border.
  FICN, as mentioned earlier, could be seen as a form of “economic terrorism” practiced by external sources to damage India’s economy. Economic terrorism refers to the behind-the-scenes manipulation of a nation’s economy by state or non-state actors. If war, as Clausewitz said, is the continuation of politics by other means, then economic warfare and economic terrorism are simply war by other means.
  The printing and circulation of FICN provides dual benefits for terrorist organizations targeting India: the circulation of FICN threatens India’s economy while the profit that is earned from doing so is used to fund covert activities targeting India. News sources claim that ISI makes an annual profit of Rs 5 billion ($73 million) from these activities, given an average of 30 to 40 percent profit on the face-value of the notes. The same money is said to be used to fund terrorist groups in India.
  Apart from funding of terrorism there are other threats posed by fake currency. One of them is inflation: the circulation of a large amount of fake currency increases the amount of money in circulation, which may lead to high demand for goods and commodities. The rise in demand in turn creates a scarcity of goods, leading to a rise in the price of the goods. This leads to currency devaluation. The non-reimbursement policy of banks is another issue that occurs when banks reject the fake notes and do not reimburse the losses. Firms which are involved in daily cash transactions face heavy losses in the long run thanks to the infiltration of FICN into the economy. Other effects of counterfeit currency include the loss of public confidence, black marketing of products, illegal stocking of products, etc. All of these negatively impact a nation’s economy and should be addressed with major concern. Accordingly, in 2012 India amended the Unlawful Activities (Prevention) Act, under which possession of FICN with the intention to damage the monetary stability of the country was considered as an act of terror.
  Given the multidimensional aspect of FICN, the problem needs to be dealt with in a holistic manner. Relevant agencies need to work together. Already, separate organizations have been taking steps. In 2010, India joined the Financial Action Task Force (FATF), an intergovernmental body seeking to fight money-laundering and terrorist financing. In 2014, the Reserve Bank of India announced the withdrawal of notes issued before 2005, another measure to tackle the issue of FICN and improve security features.
  Modi, while addressing the nation last week, implicitly accused Pakistan by saying that “enemies across the border” have been responsible for the circulation of FICN in India. The decision to withdraw Rs500 and Rs1000 notes from circulation could have a massive positive impact by eliminating FICN from India’s economy. The Rs500 note in particular is the most commonly counterfeited note in India and demonetizing it is quite a remarkable move to eradicate the threats emanating from FICN to the Indian economy.
  But the move is not a cure-all. The Rs100 note is the second-most counterfeited note and the Rs50 is close behind; these notes will still be in circulation and will continue to damage India’s economy. Though the demonetization is a bold move taken by the government, it serves as a temporary measure to tackle the FICN problem. In order to exterminate this menace completely the government needs to ensure that there is no further rise in the circulation of fake notes and that the problem is uprooted completely.
  Sharmad Mahajan is a Post-Graduate Research Scholar at the Department of Geopolitics and International Relations, Manipal University.