Back₹2,000 notes pulled ahead of elections
People holding the notes have until 30 Sep to exchange them
PremiumThe Reserve Bank of India has decided to withdraw ₹2,000 bank notes from circulation, even as it remains legal tender. The withdrawal comes months before crucial assembly elections in five states and national polls next year when cash in circulation surges.
People holding ₹2,000 notes have until 30 September to deposit or exchange the notes. The banknotes can be exchanged for up to ₹20,000 at a time at any bank starting from 23 May 2023. The facility for exchange will also be available at the 19 regional offices of RBI having issue departments. RBI has also asked banks to stop issuing ₹2,000 notes “with immediate effect".
RBI’s decision bears some similarities to the 2016 demonetization event, where the central bank invalidated ₹500 and ₹1,000 banknotes, resulting in widespread chaos. However, in contrast to the significant cash removal during the previous measure, the impact of ₹2,000 notes is likely limited as it constitutes only a fraction of the currency in circulation.
With the notes being exchanged, deposit accretion at banks could increase, reducing pressure to hike deposit rates, which in turn could also moderate the rise in short-term loan rates.
“As witnessed during demonetization, we expect the deposit accretion of banks could improve marginally in the near term. This will ease the pressure on deposit rate hikes and could also result in a moderation in short-term interest rates," said Karthik Srinivasan, senior vice president of financial sector ratings at ICRA.
“A majority of the ₹2,000 denomination notes were issued prior to March 2017 and are at the end of their estimated life-span of 4-5 years. It has also been observed that this denomination is not commonly used for transactions. Further, the stock of banknotes in other denominations continues to be adequate to meet the currency requirement of the public," said RBI in its press release.
The ₹2,000 notes were introduced in November 2016 to urgently meet the currency requirement after the withdrawal of the legal tender status of all ₹500 and ₹1,000 banknotes in circulation at that time. RBI printed nearly 3.7 billion ₹2,000 notes amounting to ₹7.4 trillion so far.
Mint reported on 25 July 2017 that RBI had stopped printing these notes and stepped-up printing of the new ₹200 notes. The printing of these ₹2,000 notes was stopped after the notes in other denominations were available in adequate quantities.
However, it was also seen that the circulation of ₹2,000 notes had drastically come down over the years, with even bank ATMs rarely disbursing these notes. According to RBI, the ₹2,000 notes currently constitute only 10.8% of the notes in circulation, amounting to ₹3.62 trillion as against 37.3%, amounting to ₹6.73 lakh as on 31 March 2018.
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