With most of the demonetized currency back with the government and most of the so called black money not being found anywhere having come back through various routes back into the banks, RBI should fall back on the old 500 rupee notes that it has collected.
It should immediately allow the use of all 500 rupee notes of the old series and the new series for the purpose of transactions till 31st March 2017.
It should keep dispensing the new notes through ATM’s and the old notes can be made available for withdrawals at bank branches.
With the supply of 500 rupee new notes increasing every day, RBI should withdraw an equivalent value / quantity of old notes from the banking system on a daily basis. That way, the economy will return to its wheels and people’s lives will be eased.
RBI should keep doing this exchange internally till all old 500 rupee notes are replaced with new 500 rupee notes without affecting people at large.
As it is, it is now clear that the demonetization exercise has failed to trap any black money. So much so that the premium in grey market for converting old currency to new has fallen to 15%. Over time this will fall to near zero as the end-date comes near.
But RBI will not be able to bring in new 500 rupee notes into the system because of faulty planning and constraints of raw material supplies for carrying out this exercise for the next 4 to 6 months. Chaos as a result is likely to increase and we may be on the edge of a precipice.
Thus in my humble opinion restoring the old 500 rupee notes for the time being will be the best solution in the short term.