07

After the bold move of demonetization in 2016, the Reserve Bank of India has surprised the nation once again by withdrawing its largest denomination currency notes from circulation on May 19, 2023. However, the 2000 rupee notes will continue to be a valid tender, but holders will be required to deposit and exchange them for smaller denominations by September 30, 2023.

What prompted this action?

According to the RBI, the note is being withdrawn because it has already served its intended purpose. Following the removal of the legal tender status of 500 and 1000 rupee banknotes in circulation, the 2000 rupee note was introduced in November 2016 to address the immediate need for money in the economy. It’s worth noting that the printing of 2000 rupee banknotes was discontinued in 2018-19. Furthermore, the withdrawal of these notes is part of the RBI’s Clean Note Policy, which has been in effect for the past 18 years. The objective of the policy is to remove worn-out and dirty notes from circulation and replace them with high-quality currency notes and coins that have enhanced security features. The current notes have already surpassed their predicted lifespan of 4-5 years. Additionally, the general public does not frequently transact using the 2000 rupee denomination. The total value of these banknotes in circulation has decreased from its peak of 6.73 lakh crore rupees on March 31, 2018 (37.3 percent of total notes in circulation) to 3.62 lakh crore rupees, constituting only 10.8 percent of total notes in circulation as of March 31, 2023.

Myths and facts

There have been four myths surrounding this monetary decision that the RBI confidently dispels. The announcement clarifies that the 2000 rupee notes will still be legal tender after the specified date, dispelling the first myth regarding their legal status if exchanged after September 30, 2023. The government also refutes the second myth, which suggests that individuals can only exchange these notes at their account-holding bank, by declaring that any bank can be approached with a currency limit of up to 20,000 rupees at a time. The government has dispelled the third misconception about paying a fee for exchange by stating that this service is completely free.

Finally, the fourth myth regarding demonetization has been debunked by clarifying that this is merely an “exchange of currency” into smaller denominations and not a complete “demonetization.”

Impact on the Economy

Experts believe that this withdrawal will not cause significant disruption due to the availability of enough smaller denomination notes. Customers are likely to use their 2000 rupee notes to purchase expensive household goods, precious metals, and potentially real estate, which will strengthen these industries and support spending in the third-largest economy in Asia for some time. However, people’s reluctance to disclose their potentially undeclared income could lead to an initial surge in conspicuous spending. On the other hand, cash-oriented industries such as small manufacturers and shops may be hesitant to accept these notes due to the inconvenience of exchanging them later.