The Central Bank has announced that the Rs. 2000 denomination banknotes will cease to circulate and gives time until September 30th, 2023, to exchange/redeem the currency at banks.
The Reserve Bank of India (RBI) has made the decision to stop issuing the Rs 2000 banknote. The central bank however clarified that despite the Rs. 2000 note ceasing to be in circulation, it will still act as legal tender.
After the demonetisation in 2016, Rs. 2000 denomination banknotes were released to meet the deficiency in currency after Rs. 500 and Rs.1000 banknotes were deemed defunct overnight.
Why is it discontinued?
Explaining the rationale behind the recent withdrawal of the Rs.2000 denomination banknotes, the RBI states that the stock of other currency in circulation is adequate to meet the currency essentials. Since 2019, the RBI has stopped printing Rs. 2000 denomination banknotes for the past four years, according to Reuters.
This move was anticipated because the valuation of Rs. 2000 denomination banknotes declined with only 10.8% of notes in circulation as of March 2023. The RBI further states that these notes are not in use for frequent transactions.
What should you do with the Rs 2000 notes you have?
The RBI clarified that despite the Rs. 2000 note ceasing to be in circulation, it still acts as a legal tender. To cease Rs. 2000 denomination banknotes circulation in the economy, the central bank stated that under the clean note policy, all banks need to assist the public in activities of deposit and to exchange Rs. 2000 denomination banknotes. RBI has given an upper limit of 20,000 rupees at a time for exchange.
What will happen after September 30?
RBI has not furnished with further steps as to what becomes of the banknotes after September 30. However, up until end of September 2023, public are allowed to exchange/ redeem the Rs.2000 denomination banknotes with an upper limit of 20,000 one time.
A look at other countries that phased out banknotes in the past
Europe: According to the ECB (European Central Bank) website, in May 2016, the 500 Euro bill ceased to have further production and issuance. The ECB clarified that although they are no longer producing these notes, the currency already in circulation will maintain their previous value as legal tenders. To combat this move of phasing out the 500 Euro banknotes from the economy, they ensured that stocks of other currency denominations are adequate for stability. This move came after suspicion that these notes were used widely for illegal purposes. Apart from this, the 20 Euro bill issued first in 2017 ceased to be a legal tender in 2022, and the 50-euro bill issued in 2011 ceased to act as a legal tender from 2022 onwards.
Venezuela: In 2016, the Venezuelan government announced that they are pulling out the 100 Bolivar notes from circulation. This move shockingly came with only hours prior notice.
Singapore: In July 2014, Singapore declared that the S$10,000 will cease to be issued any further. According to Reuters, Singapore wants to strictly scrutinise the cash intensive sectors like casinos to ensure that none of the cash is proceeding towards criminal activities.
Canada: Canada has a history of withdrawing currency from circulation in the economy, but the latest move was in the year 2000 with the now defunct CAD 1000. The Bank of Canada removed the currency from circulation, acting on the advice that these currency notes were being used in organised crime and money laundering. The status of the defunct CAD remains that it is no longer acceptable as a medium of exchange.
The move to remove the Rs.2000 denomination banknotes from circulation is being treated as a non-issue since there is a reasonable window provided to exchange the currency and since it is not frequently used for transactions, it is currently being treated as a non-issue at large by experts.
