For the last few weeks, several areas in Telangana and Andhra Pradesh have reported shortage of currency. Now similar reports are coming from eastern Maharashtra, Bihar and Gujarat too. The government is checking with banks and the Reserve Bank of India to ensure adequate supply of currency, ET Now reported. Sources in the finance ministry said the cash crunch was not alarming and there was no need to panic.
We explain how the currency problem originated in the southern states and the reasons why it could be spreading to other states. The Bill that fuelled rumoursA certain provision in the proposed Financial Resolution and Deposit Insurance (FRDI) Bill, 2017 sparked a rumour that the money would not be safe in banks if the Bill became a law. Even though the government clarified that there could be no such consequence, the rumour drove people to ATMs and bank branches to withdraw money.
Several bank loan scams coming to light led to more rumours that certain banks could fail. These rumours created a situation similar to a bank run.What is a bank run?A bank run is a self-fulfilling prophecy which means people expecting something positive or negative to happen behave in a way that makes the expectation come true even though it was not supposed to. What happened in parts of Telangana and Andhra Pradesh was similar to a bank run.
People made a run on banks, withdrawing money from...