Don’t Be Surprised If You Do Not Find Rs 2,000 Notes Going Forward
Feb 28, 2020

Author: Divya Grover

Don't Be Surprised If You Do Not Find Rs 2,000 Notes Going Forward
Image by Free stock photos from from Pixabay

It was a regular evening on November 08, 2016 and everyone in my family was going about their daily routine, until my uncle called at around 8 pm, slightly hysterical, asking us to watch the news. The news left us in a state of confusion and panic, and a little amused.

In a dramatic move, PM Modi had announced that the old Rs 500 and Rs 1,000 notes would cease to be legal tenders with immediate effect and that new Rs 500 and Rs 2,000 notes introduced in its place. The government expected this move to close the door on black money and corruption as higher denomination notes were preferred choice for money hoarders.

What ensued was a treasure hunt of sorts in every house, including mine, to find 500 and 1000 Rupee notes from wherever it was hidden in the house to be able to replace it with the new legal currency notes.

Chaos and anger followed when the banks opened a day later. Long queues of customers outside banks and ATMs were a common sight as everyone rushed to get their notes exchanged. Small businesses and daily transaction, which were till then largely depended on cash, faced severe difficulties. People held on tight to the small denomination currencies they had, spending only when necessary.

You may be wondering why I am recalling the events now after more than three years.

Here is why...

You must have noticed that ATMs have been dispensing Rs 2,000 notes less often. This is because RBI has stopped printing them.

RBI in an RTI response to The New Indian Express stated that it has stopped printing Rs 2,000 notes in the current financial year. The central bank printed Rs 3542.99 million notes of Rs 2,000 in 2016-17, reducing it to 111.51 million notes in 2017-18 and further reducing to 46.69 million notes in 2018-19.

Moreover, ATMs are being recalibrated to replace Rs 2,000 notes with Rs 500 notes and other smaller denomination notes.

Is this demonetisation 2.0?

No it isn't.

Though the Rs 2,000 note will continue to be a legal tender it is being gradually weaned out of circulation and will be replaced with Rs 500 notes.

Post-demonetisation, the higher denomination Rs 2,000 notes were introduced first to remonetise the economy quickly and the new Rs 500 notes were introduced later on.

But the Rs 2,000 notes did not find much favour with the common man as it was not easy to break these currencies into low-value denominations, leading to a drop in value of notes in circulation.

According to RBI's annual report for FY 2018-19, the share of Rs 2,000 as a percentage of the value of bank notes in circulation dropped to 31.2% in 2018-19 from 50.2% in 2016-17. At the same time, the share of Rs 500 notes in terms of value rose to 51% in 2018-19.

Table: Bank notes in circulation

Table: Bank notes in circulation
Data as of March 31, 2019

Another reason for RBI's decision to stop printing Rs 2,000 notes is that high quality counterfeit notes have been found over the years of which high denomination notes form a major part. Besides, the finance ministry released a data last year which revealed that Rs 2,000 was the favourite currency for hoarders to stash unaccounted cash.

In November last year, former finance secretary Subhash Garg had said that, "A good chunk of the Rs 2,000 notes are actually not in circulation, having been hoarded. The Rs 2,000 note, therefore, is not presently working as a currency of transaction. Withdrawing these notes from circulation would not cause any disruption. A simple method, depositing these notes in the bank accounts (no counter replacement), can be used to manage the process."

As per RBI's resent publication, over the past 5 years, the demand for high value denominated currency has outpaced low value denominated currency which may indicate that cash is increasingly used as a store of value and less for making payments.

Thus, RBI's decision to stop printing Rs 2,000 notes and preventing ATMs from dispensing these notes are keeping in mind customers' preferences.

So, if you find that the Rs 2,000 notes are disappearing, it is not a reason to panic because they are not being demonetised. They are being replaced by smaller denomination notes which are easier to transact.

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