Rs 2000 Notes Withdrawn: Is It Good Or Bad For Common Man? Former CEA Explains

The Reserve Bank of India (RBI) on Friday announced the withdrawal of Rs 2,000 currency notes from circulation. The existing notes in circulation can either be deposited in bank accounts or exchanged by September 30.

In a statement, the RBI said the bank notes in Rs 2,000 denomination will continue to be legal tender. In order to ensure operational convenience and to avoid disruption of regular activities of bank branches, the RBI said exchange of Rs 2,000 bank notes into banknotes of other denominations can be made up to a limit of Rs 20,000 at a time at any bank starting from May 23, 2023.

However, this move has been severely criticised by the Opposition parties. "Typical of our self-styled Vishwaguru. First Act, Second Think (FAST). 2,000 rupee notes introduced with such fanfare after that singularly disastrous 'Tughlaqi firman' of Nov 8 2016 are now being withdrawn," Congress general secretary Jairam Ramesh said on Twitter.

The TMC said, "BJP demonetised Rs 500 and Rs 1,000 notes in 2016, disrupting the lives of Indians everywhere! They claimed that the introduction of Rs 2,000 note would curb the flow of black money. Seven years later, they are withdrawing it from circulation. Yet another Modinomic masterstroke?".

Is It a Good Or Bad Move?
Dr Krishnamurthy Subramanian, who was the chief economic advisor from 2018 to 2021, has given a thumbs-up to the RBI's decision to withdraw Rs 2,000 currency notes from circulation. He has listed six reasons why it is a good move:

• The move will help to ferret out a substantive part of the Rs 3.6 lakh crores of Currency In Circulation (CiC) in Rs 2000 notes currently. As we have seen in several raids, where mountains of currency stored using the Rs 2000 note were uncovered, all these instances of hoarding of cash involved Rs 2000 notes.

  As the use of the Rs 2000 note as a medium of exchange has declined significantly, it is being used primarily to hoard money. The 80-20 rule suggests that even if 80 per cent of the people are legitimately storing this money in Rs 2000 notes, they are likely to be storing only 20 per cent of the overall value. 20 per cent of those who are storing the money in Rs 2000 notes are likely to be hoarders who may account for 80 per cent of the value (3 lakh crore).

  • The Rs 2000 notes are not being used much as a medium of exchange. In fact, they currently constitute only 10.8 per cent of Currency In Circulation (CiC).
  • Digital payments are being used in huge numbers for economic transactions. So, the role of physical currency notes, esp. Rs 2000 note, as a medium of exchange has declined significantly.
  • The Rs 500 note (together with digital money) can be used as a medium of exchange to seamlessly substitute even the minimal use of Rs 2000 note for this purpose.
  • Digital transactions are expected to multiply 3x from now to 2026 (BCG report), thereby minimizing the need for the Rs 2000 note as a medium of exchange even more in coming years.
  • Most importantly, as RBI has said that the Rs 2000 note will continue to be legal tender, genuine folks holding the Rs 2000 note can exchange even beyond 30-Sep-2023.