What does India’s decision to withdraw INR2000 currency note mean?

India’s central bank announced the withdrawal of INR2000 denomination currency note from circulation. The decision to withdraw the country’s highest currency note was announced by the Reserve Bank of India (RBI) on May 20. The 2000-rupee note will remain legal tender, but citizens have been notified to deposit or exchange these notes.

The INR2,000 denomination banknotes were introduced in 2016 under Section 24 (1) of the RBI Act, 1934, during the demonetisation drive introduced by the Indian government. The demonetisation drive had withdrawn all INR500 and INR1,000 banknotes in circulation at that time which constituted up to 86 per cent of physical currency in circulation.

The RBI said the INR2000 denomination note had been introduced to meet the currency short-fall in 2016 and would now be withdrawn as its usage had fallen drastically in recent years. “The INR2,000 denomination banknote was introduced in November 2016 primarily to meet the currency requirements of the economy in an expeditious manner after the withdrawal of legal tender status of all 500 and 1,000 banknotes in circulation at that time,” RBI said in a statement.

₹2000 Denomination Banknotes – Withdrawal from Circulation; Will continue as Legal Tenderhttps://t.co/im8EBo42Wk

— ReserveBankOfIndia (@RBI) May 22, 2023

Reason for withdrawal

The central bank has previously said that it wants to reduce high value notes in circulation and had stopped printing INR2000 notes since 2019. As per RBI’s data, about 89 per cent of INR2000 notes were issued prior to March 2017 and are at the end of their estimated life-span of four to five years. “This denomination is not commonly used for transactions,” the Reserve Bank of India said in its communication while explaining the decision to withdraw these notes.

It said the total value of the Rs 2000 banknotes in circulation has sharply declined to INR3.62 lakh crore constituting only 10.8 per cent of notes in circulation as of March 31, 2023. This is down from INR6.73 lakh crore at its peak as on March 31, 2018, which was 37.3 per cent of notes in circulation at that time. 

The discontinuation of ₹2000 currency notes is driven by a forward-looking vision.

Here are some of the reasons for the decision#MythsVsFacts #MythBusters@nsitharaman @finminindia @ianuragthakur@Murugan_MoS @pibindia @DDNewslive@airnewsalerts pic.twitter.com/iP9ABaS5J3

— Ministry of Information and Broadcasting (@MIB_India) May 21, 2023

The withdrawal notification has been made under the central bank’s ‘Clean Note’ policy. The objective of RBI’s “Clean Note Policy”, introduced in 1999, is to provide good quality currency notes and coins while the soiled notes are withdrawn out of circulation. 

Rs 2000 currency exchange deadline

The central bank has clarified that citizens have time between May 23 to September 30, 2023 to deposit and/or exchange these notes at any bank in the country. The State Bank of India said that no form or slip would be required while exchanging or depositing INR2,000 notes. There is no formal notification yet for those holding the currency outside India.

Transaction limit

The RBI has said that the total amount to be exchanged in a single transaction is limited to INR20,000. “In order to ensure operational convenience and to avoid disruption of regular activities of bank branches, exchange of INR2,000 bank notes into other denominations can be made up to a limit of INR20,000 at a time at any bank starting from May 23, 2023,” the RBI said.

India’s Ministry of Finance published a tweet clarifying that this exchange is not chargeable and would be done free of cost.

As we embrace this change, it is important to note that the exchange of notes shall be provided free of cost!#MythsVsFacts #MythBusters@nsitharaman @finminindia @ianuragthakur@Murugan_MoS @PIB_India @DDNewslive@airnewsalerts pic.twitter.com/FNJvdx3R6S

— Ministry of Information and Broadcasting (@MIB_India) May 21, 2023

Impact

The central bank has tried to allay fears over the announcement saying the exchange would not impact the liquidity in the Indian economy. The stock of banknotes in other denominations continues to be adequate to meet the currency requirement of the public,” the RBI added in its statement.

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