However, the current note withdrawal differs from demonetisation for several reasons.
When Prime Minister Narendra Modi declared the surprise decision of demonetisation on November 8, 2016, he said that the Rs 500 and Rs 1,000 notes would cease to remain legal tender.
That is not the case with the current Rs 2,000 withdrawal, as the note will continue to be legal tender even after the deposit deadline of September 30.
People can deposit or exchange high-value notes for lower denominations up to Rs 20,000 at a time. The RBI said people can deposit or exchange for lower denomination notes till September.
In a press release on May 20, the central bank said, “The facility of exchange of Rs 2,000 notes to all members of the public up to a limit of Rs 20,000 at a time will be allowed without obtaining any requisition slip.”
Rs 2,000 withdrawal affects 10.8 per cent of notes in circulation
In 2016, Rs 500 and Rs 1,000 notes comprised over 86 per cent of the money in circulation. This time, Rs 2,000 notes make up a relatively modest part of the total money in circulation. While the 2016 move removed a large portion of cash available with the public, the current decision will impact just about 10.8 per cent of the currency in circulation.
The difference in intended results
While it was declared that the 2016 move was meant to curb black money and the hoarding of currency, no such intention has been declared so far regarding the withdrawal of Rs 2,000 notes. The RBI has said that the decision has been taken under its “Clean Note Policy” to remove low-velocity notes from circulation.
The RBI said the Rs 2,000 note is being withdrawn as this denomination is not commonly used for transactions, and the stock of banknotes in other denominations is “adequate to meet the currency requirements of the public.” The value of Rs 2,000 notes in circulation reached a peak of Rs 6.73 trillion in March 2018, which came down to Rs 3.62 trillion by March 2023. The central bank stopped printing Rs 2,000 notes in 2018-19.
Impact on citizens
The 2016 decision led to a cash crunch in the economy, which boosted the rise of digital payments in the country. Since the circulation of Rs 2000 notes is low in the economy, and there is a comfortable gap before the deadline ends, citizens, in all probability, will not have to form serpentine queues in front of ATMs and banks.
Customers can exchange the Rs 2,000 notes without restrictions subject to compliance with Know Your Customer (KYC) norms and other regulatory requirements.