Rs 2,000 Note Withdrawal: How It Is Different From The 2016 Demonetisation

There are some fundamental differences between the RBI's gradual withdrawal of the Rs 2,000 denomination banknotes from circulation versus the 2016 demonetisation.

The Reserve Bank of India's (RBI) decision to withdraw the Rs 2,000 currency note has taken many by surprise. People on social media and elsewhere have started comparing the announcement with the 2016 demonetisation announced by Prime Minister Narendra Modi. Even opposition parties have termed the RBI decision as a "Second Demo disaster".

Congress leaders have said that the current situation could lead to another catastrophic event similar to the demonetisation exercise of November 8, 2016, where the government invalidated all Rs 500 and Rs 1,000 banknotes.

However, there are some fundamental differences between the RBI's gradual withdrawal of the Rs 2,000 denomination banknotes from circulation versus the 2016 demonetisation. 

• Unlike the sudden demonetisation of Rs 500 and Rs 1,000 notes by Prime Minister Narendra Modi in 2016, where these notes were declared invalid overnight, the Reserve Bank of India (RBI) has not declared the Rs 2,000 notes invalid this time. The RBI has explicitly stated that the Rs 2,000 notes will continue to be recognised as legal tender, allowing them to be used for transactions. 
  
  


• The Reserve Bank of India (RBI) has provided ample time and facilities for depositing or exchanging these notes at bank branches or authorised RBI centers. The deadline for this process is September 30, allowing the public sufficient time to take necessary action. Starting Tuesday, customers can exchange Rs 2,000 notes worth up to Rs 20,000 at a time. Additionally, the RBI has authorised business correspondents, who are agents of banks, to exchange Rs 2,000 notes up to a limit of Rs 4,000 per day for account holders. Therefore, individuals who possess Rs 2,000 notes obtained through legitimate means have appropriate options available to manage their holdings without any cause for concern.
  
  


• The current withdrawal of Rs 2,000 notes is quite different from the situation during the demonetisation of Rs 500 and Rs 1,000 notes. This time, the Rs 2,000 notes constitute a relatively smaller portion of the total currency in circulation. According to data from the RBI, the total value of Rs 2,000 notes in circulation has declined to 10.8 per cent of the total as of March 31, 2023. As a result, it is logical to assume that common people would possess only small quantities of these notes. Therefore, the kind of panic that was witnessed during the note ban in 2016 is unlikely to occur this time.
  
  


• The decision to withdraw Rs 2,000 notes was not entirely unexpected, as there were clear indications from the RBI and the government over the years. Since the demonetisation period, the RBI had been steadily reducing the proportion of Rs 2,000 notes in circulation. According to RBI data, the number of Rs 2,000 notes declined from approximately 274 crores or 2.4 per cent of the total currency in circulation to 214 crores or 1.6 per cent by the end of March 2022. In terms of value, the share of Rs 2,000 notes decreased from around 37.3 per cent of the total value of currency notes in circulation in March 2018 to 10.8 per cent by March 2023.
  
  


• Since 2018, the RBI started to print a lesser number of Rs 2,000 notes and it steadily declined over the years. According to RBI's annual report, the central bank did not print a single Rs 2,000 note in FY20, FY21, and FY22. In a reply in Parliament, the Finance Ministry had said, "On March 31, 2020, the share of Rs 2000 denomination banknotes in terms of value to the total Notes in Circulation (NIC) was 22.6 per cent. As on March 31, 2022, the share of Rs 2000 denomination banknotes in terms of value to the total NIC was 13.8 per cent.
  
  


• The withdrawal of Rs 2,000 notes is not an unprecedented move by the Reserve Bank of India (RBI). In the past, the RBI has undertaken similar exercises. For instance, in 2013-14, the RBI announced its intention to completely withdraw from circulation all banknotes issued prior to 2005 after March 2014. Customers were given time until July 1, 2014, to submit proof of identity and residence. Such actions are part of the RBI's 'Clean Note Policy', which aims to maintain the integrity and quality of currency in circulation.