- India will withdraw its highest denomination currency note from circulation, the central bank said on Friday. The 2000-rupee note, introduced into circulation in 2016, will remain legal tender but citizens have been asked to deposit or exchange these notes by Sept. 30, 2023.
The decision is reminiscent of a shock move in 2016 when the Narenda Modi-led government had withdrawn 86% of the economy's currency in circulation overnight
6 reasons why RBI withdrawing ₹2,000 notes is a good move,
In several raids, ₹2,000 notes were uncovered proving that the currency was being used primarily for hoarding money. "The 80-20 rule suggests that even if 80% of the people are legitimately storing this money in ₹2000 notes, they are likely to be storing only 20% of the overall value. 20% of those who are storing the money in ₹2000 notes are likely to be hoarders who may account for 80% of the value (~3 lakh crores)," Subramanian said.
2. The move will not inconvenience the common people as ₹2,000 notes are not being used in huge numbers for economic transactions.
3. The role of physical currency notes, especially ₹2,000 notes, declined as digital payments are being used in huge numbers.
4. The ₹500 note (together with digital money) can be used as a medium of exchange to "seamlessly substitute even the minimal use of ₹2000 note for this purpose".
5. "Digital transactions are expected to multiply 3x from now to 2026 (BCG report), thereby minimizing the need for the ₹2000 note as a medium of exchange even more in coming years," Dr Subramanian said.
6. "Most importantly, as RBI has said that the ₹2000 note will continue to be legal tender (even beyond 30-Sep-2023 is my current understanding though RBI may need to clarify this), genuine folks holding the ₹2000 note can exchange even beyond 30-Sep-2023," Dr Subramanian said.
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