AIR Spotlight - Withdrawal of 2000 Rupee Currency Notes

AIR Spotlight is an insightful program featured daily on the All India Radio News on air. In this program, many eminent panellists discuss issues of importance which can be quite helpful in IAS exam preparation.

This article is about the discussion on: ‘Withdrawal of 2000 Rupee Currency Notes’.

Participants –

• Dr Sharad Kohli: Economic Analyst
• Rajesh Lekh: AIR Correspondent

Context – The Reserve Bank of India (RBI) has decided to withdraw Rs 2000 denomination banknotes from circulation in pursuance of its ‘Clean Note Policy’ and asked everyone to exchange them by September 30, 2023. A similar withdrawal of notes from circulation was undertaken in 2013-2014.

Introduction – 

The RBI announced the withdrawal of its highest-value currency note, Rs 2000 from circulation, however, the notes will continue to be legal tender, which implies that consumers can purchase goods using the currency. The central bank has asked everyone to deposit the Rs 2000 bank notes into their accounts or exchange them for banknotes of other denominations at any bank branch by September 30, 2023, and has set a limit of Rs 20,000 at a time to avoid disruptions of regular activities of bank branches.

Reasons for the withdrawal of the 2000 rupee currency note from circulation

The Rs 2000 banknote was introduced in November 2016 (demonetisation) under Section 24 (1) of the RBI Act, primarily to meet the currency requirement of the economy in an expeditious manner after the withdrawal of the legal tender status of all Rs 500 and Rs 1000 banknotes in circulation at that time.

• Rs 2000 banknote is a large amount of currency note and was introduced as an ad-hoc measure when demonetisation took place in November 2016. The country was short of currency notes and there was a need for the remonetization process. Even if the printing presses would have run for 24 hours a day, it wouldn’t have been possible to meet the requirements of the economy. So, a solution in the form of a 2000 currency note was introduced to fill up the huge currency gap.
• Every currency note, especially paper note, has a lifespan of 4-5 years, so it is very normal for RBI under Section 26(2) of the RBI Act, 1934 to ask the government to pass an ordinance by which these notes are withdrawn and taken out of circulation. The Clean Note Policy of the RBI ensures the availability of good quality banknotes to the public. 
• About 89% of the Rs 2000 denomination notes were issued prior to March 2017 and are at the end of their estimated life span of 4-5 years. The total value of these banknotes in circulation has declined from Rs 6.73 lakh crore at its peak in March 2018 (37.3% of notes in circulation) to Rs 3.62 lakh crore constituting only 10.8% of notes in circulation on March 31, 2023, so the impact of withdrawal will be very marginal for the economy. When demonetisation was done in 2016, Rs 500 and Rs 1000 banknotes comprised 80% of the total currency in circulation. 
• It has also been observed that this denomination is not commonly used for transactions and the stock of banknotes in other denominations continues to be adequate to meet the currency requirement of the public. 
• The withdrawal of Rs 2000 currency notes also aims to restrict its hoarding and proliferation of black money. 

Important Questions and Answers Regarding the Withdrawal of 2000 Rupee Notes

Does the legal tender status of Rs 2000 banknotes remain?

The Rs 2000 banknote will continue to maintain its legal tender status.

• Members of the public can continue to use Rs 2,000 banknotes for their transactions and also receive them in payment. However, they are encouraged to deposit and/or exchange these notes on or before September 30, 2023. 
• It is the withdrawal of Rs 2000 banknotes and not a ban on it.

Can Rs 2000 banknotes be exchanged through Business Correspondents?

Exchange of Rs 2000 banknotes can be made through Business Correspondents up to a limit of Rs 4000 per day for an account holder. 

Is it necessary to be a customer of the bank to exchange Rs 2000 banknotes from its branches?

A non-account holder also can exchange Rs 2000 up to a limit of Rs 20,000 at a time at any bank branch.

Will there be special arrangements for senior citizens, persons with disabilities, etc. for exchange and deposit? 

Banks have been asked to make arrangements to reduce inconvenience to senior citizens, persons with disabilities, etc., who are keen to exchange or deposit Rs 2000 banknotes.

Is there a limit on deposit of Rs 2000 banknotes into a bank account?

Deposit into bank accounts can be made without restrictions subject to compliance with extant KYC (Know Your Customer) norms and other applicable statutory/regulatory requirements. So, there is no limit on the deposit of Rs 2000 banknotes into a bank account.

Conclusion – The objective of introducing Rs 2000 banknotes after demonetisation in 2016, has been met and it is high time to withdraw the highest-value currency note. The impact of the withdrawal will be very marginal on the economy as it accounts for only 10.8% of the currency in circulation. The withdrawal of the Rs 2000 banknotes will also help in curbing black money to a great extent because people are hoarding the high-value currency. 

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