The banking regulator has a detailed process for dealing with the demonetised currency.

Demonetisation What will the RBI do with old Rs 500 and Rs 1000 notesPTI
news Demonetisation Thursday, November 24, 2016 - 17:01

With the government demonetising the old Rs 500 and Rs 1,000 notes, crores of currency notes have suddenly lost their value as legal tender. According to the Reserve Bank of India (RBI), the total value of outstanding currency in circulation in the Indian economy as on October 28 stood at Rs 17.77 lakh crore, or about $265 billion.

The RBI also reported that, as on March 31, currency notes of Rs 500 and Rs 1,000 comprised 86% of the total currency value in circulation. 

One big question on a lot of minds is, what will the RBI do with the crores of recalled notes? 

The banking regulator has a detailed process for dealing with the demonetised currency, which begins with the notes being examined using the Currency Verification and Processing System (CVPS) installed in RBI offices, an automated system for processing notes based on authenticity and fitness. This system can process up to 60,000 notes per hour

The CVPS "counts, examines the genuineness of notes, sorts notes into fit and unfit and destroys the unfit notes on-line," reports Zee News

In the next step, the demonetised notes are shredded to bits. 

Stating that the RBI is well prepared for disposing of the immense amounts of currency, an official with the banking regulator told The Economic Times, "They are shredded to the extent that they can no longer be reconstructed. Then it passes through a humidifier to convert into briquettes."

In India, briquettes made from farm waste are used for various purposes including for cooking and lighting. They are also cheaper than coal and cause less pollution. 

However, a central bank official told the BBC that briquettes made from shredded cash are brittle and so they can't be put to much use. They are sometimes recycled to make products such as files and pen shells. 

"So the bank's 27 shredding and briquetting machines in 19 offices across India will now snip the expired banknotes into the smallest of pieces and the resulting briquettes will be then dumped in India's vast landfills," the report states.

(IANS inputs)