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On May 19, 2023, the Reserve Bank of India (RBI) announced the phased withdrawal of the ₹2000 currency note starting from September 2023. It was specified that after May 23, 2023, the ₹2000 notes could only be exchanged in banks. The RBI clarified that while the ₹2000 note would remain valid in the market, the general public would have to deposit this currency in banks by September 30, 2023. After May 23, currency notes up to ₹20,000 could be exchanged in banks in a single transaction, allowing for the exchange of up to 10 ₹2000 notes at a time. RBI Governor Shaktikanta Das stated that this limit was implemented to minimize inconvenience to the public, ensure operational convenience, and avoid disruption to the regular business operations of bank branches. Bharatiya Janata Party leader Sushil Kumar Modi supported the decision, referring to the withdrawal of the ₹2000 currency as a “surgical strike 2.0” on black money.

This is not the first time currency has been withdrawn from circulation in India, nor is it the first time the current government or RBI has withdrawn currency from the market. Since 1946, there have been five instances of demonetization or withdrawal of currency in circulation. In 1946, currency notes of ₹500, ₹1,000, and ₹10,000 were discontinued. Later, in 1978, currency notes worth ₹1,000, ₹5,000, and ₹10,000 were discontinued. In 2014, ₹500 and ₹1,000 notes issued before the year 2005 were withdrawn. During Modi’s tenure in 2016, ₹500 and ₹1,000 notes were discontinued, and the ₹2,000 note was introduced to fill the gap. Now, in 2023, the same ₹2,000 note is being withdrawn from circulation. The rationale behind demonetization in 2014, 2016, and 2023 remains the same, which is to control black money. It is worth mentioning that the demonetization in November 2016, when ₹500 and ₹1,000 notes were withdrawn overnight, was the most drastic measure. In 2016, ₹500 and ₹1,000 currency notes accounted for about 86% of the currency in circulation, and their removal caused severe cash shortages across the country. This led to a catastrophic economic and social impact, resulting in over a hundred deaths of people standing in queues to withdraw cash, significant job losses of nearly 150,000 individuals, and substantial agricultural losses as the ready-to-be-sold kharif crop couldn’t be sold due to the cash shortage. Before delving into the discussion about the introduction and withdrawal of the ₹2000 currency, we need to briefly understand how Prime Minister Modi came up with the idea of overnight demonetization.

Investigation into this matter reveals that a person named Anil Bokil had inspired the government to demonetize some currency in the Indian economy. Anil Bokil founded an organization called Artha Kranti in Pune, Maharashtra, in 2004, which had been advocating for currency demonetization for several years. In 2013, Anil Bokil met the then Chief Minister of Gujarat, Narendra Modi, in Ahmedabad, and this meeting lasted for 2 hours. It is assumed that during this meeting, the foundation for demonetization was laid down under the guise of India’s economic revival. Although Artha Kranti’s objective was not directly linked to demonetization, their aim was to attack black money by reducing the value of the highest denomination notes in the country. Even today, Artha Kranti proposes that India should move away from high denomination currency notes, with the highest denomination being ₹50 (as is the case in the US and England). In addition to the proposal of reducing high denomination notes, other major reforms suggested by Artha Kranti include abolishing all types of taxes, setting a cash transaction limit of ₹2,000, conducting all transactions beyond ₹2,000 through the banking system, and implementing tax payments on every transaction. Anil Bokil and Artha Kranti advocated for a gradual transformation of the economy over a period of 18 months, but Prime Minister Narendra Modi’s demonetization decision occurred abruptly within a span of 4 hours. It is difficult to understand why, if the previous demonetization attempt failed to expose and curb black money, removing the ₹2,000 currency note from circulation will prevent the proliferation of black money.

Overall, the ₹2,000 notes have been surrounded by controversy since their introduction in 2016. The decision to introduce ₹2,000 notes and demonetize ₹500 and ₹1,000 notes to curb black money was commendable. However, as the ₹2,000 notes had a different size and were not compatible with ATM machines, modifications were required nationwide, causing inconvenience to a large segment of the population standing in queues at that time. The ₹2,000 notes were “notified” under Section 24(2) of the RBI Act, but it was later discovered that they were categorized incorrectly. Section 24(1) of the RBI Act empowers the Central Government to issue banknotes. Consequently, necessary modifications were made subsequently. The withdrawal of the ₹2,000 note from circulation has raised certain doubts that may need clarification from the central government and the central bank.

The demonetization on November 8, 2016, was subsequently claimed to be an effort to transition the economy to a cashless or less-cash economy and promote digitization. However, recent RBI documents revealed that the amount of cash held by the Indian public, which was ₹17.7 lakh crore on November 4, 2016, had increased to ₹30.88 lakh crore on October 21, 2022. This indicates that contrary to the claims made, the Indian economy has neither transitioned to a less cash nor a cashless economy.

In response to an RTI query filed by news agency IANS, it was revealed that no new ₹2,000 notes had been printed by the RBI from 2019 to 2022. In fact, the printing of these notes was halted after 2018. The Reserve Bank of India Note Mudran (P) Limited printed 35,429.91 lakh ₹2,000 notes during the financial year 2016-17, which decreased to 1,115.07 lakh notes in 2017-18. In 2018-19, the number of printed notes was recorded at 466.90 lakhs only. The total value of ₹2,000 notes in circulation on March 31, 2018, was ₹6.73 lakh crore (37.3% of the currency in circulation), which declined to ₹3.62 lakh crore (10.8% of the currency in circulation) on March 31, 2023. Regrettably, when the government and RBI were successfully reducing the share of ₹2,000 notes in the overall currency in circulation, the announcement of their withdrawal caused unnecessary panic among the public.

Another issue that is difficult to comprehend is the contra-dictory nature of the government’s actions. On one hand, the government has been providing 5 kg of free food grains per month to 80 crore people under the Pradhan Mantri Garib Kalyan Anna Yojana for the past 3 years, and on the other hand, it claims that the withdrawal of the ₹2,000 note from circulation is an attack on black money. Even if it is assumed that some wealthy individuals in India possess black money, is it likely that they would store it in ₹2,000 currency notes in their homes? Isn’t it possible that they would invest it in gold or real estate instead? Furthermore, the biggest source of

black money is electoral bonds of political parties, an issue on which all political parties and governments remain silent and evade discussion.

These repeated currency manipulations tarnish the government’s reputation on the international stage and have a negative impact on international traders, businessmen, and investors. India may be the only country in the world where large denomination currency has been rendered unusable for ordinary people for the second time within a span of 5-6 years. Before internationalizing the rupee and gaining the confidence of foreign entities, our government needs to instill trust in the Indian currency.

It is now evident that if demonetization had not occurred in 2016, India’s GDP would have been 2 percent higher today. Similarly, the impact of the ₹2,000 note going out of circulation will only be known over time in relation to the Indian economy. So far, only the banks in India seem to have benefited from the deposit of ₹2,000 notes, as it has helped them overcome the liquidity crisis.