New Delhi: Indian banks’ watchdog Reserve Bank of India gave India a shock wave on Friday after it decided to withdraw Rs 2,000 denomination after September 30. The banks will be able to exchange the high-end currency note up to a limit of Rs 20,000 from May 23, 2023.
Approx 89 per cent of these Rs 2,000 currency notes were issued before May 2017 and their time period to exist has come to an end, said RBI on May 19.
“The total value of these banknotes in circulation has declined from Rs 6.73 lakh crore at its peak as on March 31, 2018 (37.3 per cent of notes in circulation) to Rs 3.62 lakh crore constituting only 10.8 per cent of notes in circulation on March 31, 2023,” RBI said in a release.
Market Experts its effects
However, market experts have to say that the decision to take back these notes will not affect the economy as well as the markets this time due to the rapid digitalization that prevails heavily now in India.
Independent market analyst Ambareesh Baliga said, “People, in general, have started using online payment facilities extensively – so don’t see a huge issue like what we saw earlier in 2016.”
G Chokkalingam, Founder, of Equinomics Research and Advisory said: “It is a brilliant move. Now mostly it is with banks and some quantity maybe with black money hoarders. People with black money will be cornered as the public or common man would hesitate to accept it. This move ultimately would reduce the quantum of black money and help tax collections to improve. Hence, it is a positive development for markets.”
An ex-chief economist explains the positive impacts of the decision
Ex-Chief Economics Advisor Dr Krishnamurthy Subramanian explained the move to be a good one as he explained that the decision will stop the hoarding of cash. As the usage of Rs 2,000 bank notes has diminished noticeably, meaning it’s being used to hoard money.
As the digitalization of money is being enhanced in the country, the role of liquid funds is being faded out. According to the BCG report, digital transactions are anticipated to be used 3 times from now to 2026, which directly means a decline in the usage of Rs 2000 currency notes for the upcoming years.
Rs 2,000 banknotes came out after PM Narendra Modi announced demonetisation on November 8, 2016, which banned the use of the existing Rs 500 and Rs 1,000 currency notes. However, the centre brought back Rs 500 bank notes along with the denomination Rs 2,000 at that time. But, the RBI ceased printing Rs 2,000 notes in 2018-19 as they were hardly in circulation.
The total value that these notes hold till now is Rs 3.63 lakh crore meaning only 10.8 per cent of notes in circulation as of March 31, 2023, in comparison to Rs 6.73 lakh crore at its peak with 37.3 per cent of notes in circulation as on March 31, 2018
