In a recent announcement, the Reserve Bank of India (RBI) has declared its decision to withdraw the circulation of Rs 2,000 denomination banknotes while ensuring their continued status as legal tender. The central bank has set a deadline of September 30, 2023, for the public to exchange or deposit these notes.
The RBI’s move is in line with its “Clean Note Policy” and is motivated by several factors. Primarily, approximately 89% of the Rs 2,000 banknotes in circulation were issued before March 2017 and have nearly reached their estimated lifespan of 4-5 years. The total value of these banknotes has significantly decreased from its peak of ₹6.73 lakh crore as of March 31, 2018, to ₹3.62 lakh crore, representing only 10.8% of Notes in Circulation by March 31, 2023. Moreover, it has been observed that the Rs 2,000 denomination is not widely utilized for everyday transactions. Additionally, the stock of banknotes in other denominations remains sufficient to meet the currency requirements of the public.
To facilitate a smooth transition, the RBI has ensured that all banks will provide deposit and exchange services for Rs 2,000 banknotes until the specified deadline. Individuals can deposit these notes into their bank accounts or exchange them for banknotes of other denominations at any bank branch. The deposit process will follow the usual procedures without any restrictions, in accordance with existing instructions and statutory provisions.
Moreover, starting from May 23, 2023, individuals will be able to exchange Rs 2,000 banknotes for banknotes of other denominations up to a limit of ₹20,000 at a time at any bank. This exchange facility will also be available at the 19 Regional Offices of the RBI with issue departments. This approach aims to ensure operational convenience and prevent disruption to regular banking activities.
The introduction of the Rs 2,000 denomination banknote took place in November 2016 following the demonetization of Rs 1,000 and the older Rs 500 banknotes. The RBI had already ceased printing Rs 2,000 banknotes in the fiscal year 2018-19 after achieving the objective of introducing them, which was to provide an interim high-value currency until an adequate supply of lower denomination notes became available.
According to the Annual Reports of RBI presented before the Parliament in March, the total value of Rs 500 and Rs 2,000 denomination banknotes in circulation as of March 2017 and March 2022 was Rs 9.512 lakh crore and Rs 27.057 lakh crore, respectively.
Finance Minister Nirmala Sitharaman clarified that banks have not been instructed to refrain from filling ATMs with Rs 2,000 notes. The decision to include these notes in ATMs is at the discretion of individual banks, based on their assessment of demand, historical usage patterns, seasonal trends, and consumer requirements.
With this move, the RBI aims to ensure a well-functioning currency system and encourage the usage of denominations that align with the transactional needs of the public. The phased withdrawal of the Rs 2,000 banknotes will provide ample time for individuals to exchange or deposit them, minimizing any inconvenience caused by the transition.
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The Chenab Times News Desk
