The Reserve Bank of India (RBI) has stated that Rs 2,000 in currency will be removed from circulation. It has also directed banks to stop issuing these notes immediately. The RBI has offered the people four months (until September 30) to exchange or deposit Rs 2,000 notes in bank branches or authorised RBI offices.
Following the announcement on May 19, social media was abuzz with conjecture about the nature of this action, with many comparing it to the 2016 massive demonetisation effort.
It is fundamentally incorrect to equate the removal of Rs. 2,000 notes to the note ban exercise in 2016.
There are five reasons for this:
One: Unlike during demonetisation, when Prime Minister Narendra Modi declared Rs 500 and Rs 1,000 notes, accounting for around 86 percent of the cash in circulation, worthless overnight, neither the RBI nor the government has declared Rs 2,000 notes useless this time. The RBI has said unequivocally that these banknotes will continue to be legal tender, which means they may be used in transactions. As a result, the value of the notes has not changed, but the Rs 500 and Rs 1,000 notes lost value overnight in 2016.
Two: There is no need to fear for honest folks who have legitimate sources for Rs. 2,000 bills. The RBI provides enough time and facilities for depositing or exchanging these currencies in bank branches or licenced RBI centres. The public has until September 30 to accomplish this. Beginning Tuesday, customers can swap Rs 2,000 notes worth Rs 20,000 at a time. Furthermore, there is no restriction on users depositing Rs 2,000 notes into their accounts. The RBI has now allowed business correspondents (bank agents) to swap Rs 2,000 notes for account holders up to a maximum of Rs 4,000 per day.
Three: Unlike the Rs 500 and Rs 1,000 notes now in circulation, the Rs 2,000 notes account for a far lower proportion of the total money in circulation. In other words, regular people will naturally only have a limited supply of these notes. As a result, the type of panic that was evident during the note ban is unlikely to occur this time. To put things in perspective, the entire amount of Rs 2,000 notes in circulation has decreased to 10.8 percent of the total as of March 31, 2023, according to RBI statistics. To be more specific, the total value of these banknotes in circulation has decreased from Rs 6.73 lakh crore on March 31, 2018 (37.3 percent of notes in circulation) to Rs 3.62 lakh crore on March 31, 2023 (10.8% of notes in circulation).
Four: The elimination of Rs. 2,000 notes was not surprising. The writing was clearly on the wall. Since the era of demonetisation, the RBI has been gradually reducing the amount of Rs 2,000 notes. According to RBI statistics, the volume (number of pieces) of Rs 2,000 notes has declined from roughly 274 crore, or 2.4 percent, of total currency in circulation in March 2020 to 214 crore, or 1.6 percent, by the end of March 2022. In terms of value, Rs. 2,000 notes have declined from roughly 37.3 percent of all currency notes in circulation in March 2018 to 10.8 percent in March 2023. In that sense, the direction or approach to the Rs. 2,000 notes has been evident in recent years. Even if the RBI did not announce the withdrawal of Rs 2,000 notes immediately, these bills would have been phased out of circulation over the following few years based on prior declines. As a result, this should come as no surprise to anyone.
Five: This is not the first time the RBI has removed currency from circulation. There is precedent for such an endeavour, as the RBI stated in 2013-14 that it would withdraw from circulation all banknotes produced before 2005 after March 14, 2014. The RBI extended the deadline for clients to submit confirmation of identification and residency to July 1, 2014. As part of its clean note policy, the RBI undertakes such exercises on a regular basis. The short version is that the removal of Rs 2,000 notes can only be compared to what happened in 2014, rather than the 2016 demonetisation drill.
Final takeway:
To summarise, there is no cause for the people to fear if the 2016 demonetisation procedure is repeated, as bank branches will begin accepting Rs 2,000 notes for exchange or deposit on May 23. There are four months from now to swap the Rs 2,000 notes for other denominations or deposit the sum. The RBI has finally drawn the curtains on the pink notes with adequate protections, so the process is unlikely to devolve into pandemonium.
