According to the RBI press release, the Rs 2,000 notes will continue to retain their legal status, allowing people to use them for transactions. This is different from the 2016 demonetization, where the notes became worthless overnight. In this case, the RBI plans to retrieve and potentially destroy all the Rs 2,000 notes in circulation, hoping that none will remain by September 30.
However, if the RBI is unable to recover all the Rs 2,000 notes, the question arises as to whether these notes will still be considered legal tender. In such a situation, which is not entirely improbable, the RBI might have the option to extend the deadline for returning the notes or issue a notification declaring them invalid. Business Today has reported that the RBI does not possess the authority to demonetize on its own, so the government may have to intervene and officially declare the Rs 2,000 note as no longer valid.
Nevertheless, considering the expected low number of Rs 2,000 notes in circulation by September 30, assuming people return them, the impact would not be as alarming as the previous demonetization. Ideally, the RBI hopes that this situation does not arise and it successfully retrieves all the Rs 2,000 notes. Alternatively, after September 30, individuals may need to visit the RBI to exchange discontinued notes.
Reasons why it is wrong to compare withdrawal of Rs.2000 note with Demonetization.
One : In contrast to the demonetization event in 2016, where Prime Minister Narendra Modi declared ₹500 and ₹1,000 notes as invalid overnight, neither the RBI nor the government has declared ₹2,000 notes as invalid this time.
The RBI has explicitly stated that these notes will continue to be legal tender, allowing them to be used for transactions. Therefore, the value of ₹2,000 notes remains intact, unlike the situation in 2016 when ₹500 and ₹1,000 notes lost their value overnight.
Two : Honest citizens who possess legitimate sources for ₹2,000 notes have no reason to panic. The RBI has provided ample time and facilities for individuals to deposit or exchange these notes at bank branches or authorized RBI centers.
The deadline for such transactions is until September 30. Customers can exchange ₹2,000 notes amounting to ₹20,000 at a time, starting from Tuesday. Furthermore, there are no restrictions on depositing ₹2,000 notes into customer accounts. The RBI has also permitted business correspondents, who are agents of banks, to exchange ₹2,000 notes for account holders up to a daily limit of ₹4,000.
Three : Unlike the previous scenario with ₹500 and ₹1,000 notes, the proportion of ₹2,000 notes in circulation is relatively smaller. Therefore, it is logical to assume that common people hold only small quantities of these notes, reducing the likelihood of panic similar to the past note ban.
According to RBI data, as of March 31, 2023, the total value of ₹2,000 notes in circulation has decreased to 10.8% of the total currency. Specifically, the value of these notes has declined from ₹6.73 lakh crore (37.3% of total notes) on March 31, 2018, to ₹3.62 lakh crore, representing only 10.8% of notes in circulation by March 31, 2023.
Four : The withdrawal of ₹2,000 notes was not unexpected, as indications of this move had been evident for some time. The RBI had been steadily reducing the presence of ₹2,000 notes since the demonetization period. Based on RBI data, the volume of ₹2,000 notes as a percentage of the total currency in circulation decreased from around 2.4% (approximately 274 crore pieces) in March 2020 to 1.6% (around 214 crore pieces) by the end of March 2022.
In terms of value, the share of ₹2,000 notes declined from about 37.3% of the total currency value in circulation in March 2018 to 10.8% by March 2023. This trend clearly indicated the direction and approach regarding ₹2,000 notes over the past few years. Even if the RBI had not officially announced the withdrawal, these notes would have gradually phased out of circulation in the coming years. Therefore, this development should not come as a surprise to anyone.
Five : The RBI has a history of withdrawing notes from circulation, as seen in 2013-14 when it announced the complete withdrawal of banknotes issued before 2005 by March 2014. Customers were given time until July 1, 2014, to submit proof of identity and residence. The RBI conducts such exercises periodically as part of its clean note policy. Therefore, the withdrawal of ₹2,000 notes can be compared to the 2014 event rather than the demonetization process in 2016.
Final takeaway
In summary, there is no need for the public to worry about a repetition of the 2016 demonetization event. Bank branches will start accepting Rs 2,000 notes for exchange or deposit from May 23 onwards. There is a four-month window available to exchange or deposit the Rs 2,000 notes for other denominations. The RBI has taken necessary precautions and concluded the process of phasing out the pink notes, ensuring that it will not result in chaos.
