Explained: Why RBI Has Decided To Withdraw Rs 2,000 Notes From Circulation
Rs 2,000 Currency Note Exchange: The RBI said the note was issued mainly to meet the currency requirement of the economy at a faster pace after the scrapping of Rs 500 and Rs 1,000 banknotes in 2016.
More than six years after it was introduced in November 2016, the Reserve Bank of India (RBI) has decided to withdraw Rs 2,000 notes from circulation. However, the central bank said the notes would remain legal tender and people can exchange or deposit the Rs 2,000 notes in their bank accounts by September 30.
The RBI has directed all banks to stop issuing the notes immediately. "Exchange of Rs 2,000 banknotes into banknotes of other denominations can be made up to a limit of Rs 20,000 at a time at any bank starting from May 23, 2023," the RBI statement further said.
So, Why Did RBI Suddenly Scrap Rs 2,000 Notes?
The RBI introduced the Rs 2,000 note in November 2016 after after Prime Minister Narendra Modi demonetised Rs 1,000 and Rs 500 notes overnight in a bid to curtail black money, eradicate fake currency notes, and create a cashless economy by promoting digital transactions.
The RBI said the note was issued mainly to meet the currency requirement of the economy at a faster pace after the scrapping of all Rs 500 and Rs 1,000 banknotes in circulation at that time. The RBI stopped the printing of Rs 2,000 banknotes in 2018-19 with the fulfilment of that objective and availability of banknotes in other denominations in adequate quantities
Noting that majority of the Rs 2,000 notes were issued before March 2017, the RBI said they have completed their estimated lifespan and are not commonly used for transactions.
Moreover, the RBI said the stock of banknotes in other denominations are adequate to meet the currency requirement of the public. At present, the RBI issues banknotes in the denominations of Rs 2, Rs 5, Rs 10, Rs 20, Rs 50, Rs 100, Rs 200, Rs 500.
"Therefore, it has been decided that, in pursuance of the 'Clean Note Policy' of the Reserve Bank of India, the Rs 2,000 denomination banknotes shall be withdrawn from circulation," the central bank said.
Earlier this year, BJP Rajya Sabha MP Sushil Kumar Modi urged the government in Parliament to phase out Rs 2,000 denomination notes, alleging that there was information that people had hoarded them and were using for "terror funding, drug trafficking and hoarding black money".
READ | Here Is How You Can Exchange Rs 2000 Notes From Banks
Why Were Rs 2,000 Notes Introduced?
When demonetistion was announced by PM Modi, Rs 500 and Rs 1,000 notes accounted for more than 80 per cent of the total value of notes in circulation. Thus, to replace the value of the demonetised notes expeditiously, the higher value of Rs 2,000 notes were introduced.
The move helped the RBI remonetise the economy quickly. As of March 2017, Rs 2,000 notes made up 50.2 per cent of the total value of currency in circulation.
How Were Rs 2,000 Notes Gradually Removed From Circulation?
Since 2018, the RBI started to print 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.
As on March 31, 2022, these notes made up only 13.8 per cent of all currency notes in circulation.
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.
"Demand for currency depends upon several macro-economic factors including economic growth and level of interest rate. Increase of digital transactions also affects requirement for currency," the Finance Ministry had said.
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