Why has RBI withdrawn Rs 2000 notes? How is this different from demonetisation?

The Rs 2000 denomination of banknotes will no longer be in use.

However, the current notes will still be accepted as legal money, the Reserve Bank of India (RBI) said in a press release.

People have been advised to deposit Rs 2000 banknotes, which were introduced six years ago, into their bank accounts or swap them for banknotes of other denominations at any bank.

But why is it happening? Is this similar to the 2016 demonetisation? What will be the fate of Rs 2000 banknotes?

Let’s take a closer look.

The reason for the withdrawal

In accordance with Section 24(1) of The RBI Act, 1934, the Rs 2000 note was introduced in November 2016 with the primary goal of quickly addressing the economy’s need for money after the Rs 500 and Rs 1000 notes lost their legal tender validity.

The majority of the Rs 2000 notes that the RBI had issued up until March 2017 are now nearing the end of their anticipated lifespan of 4-5 years. Due to the fact that there is an adequate supply of banknotes in other denominations, this denomination is no longer frequently used for transactions.

It should be noted here that the printing of these banknotes was discontinued in 2018-2019 once notes of other denominations were readily accessible.

“In view of the above, and in pursuance of the ‘Clean Note Policy’ of the Reserve Bank of India, it has been decided to withdraw the Rs 2000 denomination banknotes from circulation,” the RBI said.

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Reserve Bank of India has advised banks to stop issuing Rs 2000 denomination banknotes with immediate effect though banknotes in Rs 2000 denomination will continue to be legal tender. https://t.co/yLWWpyuahL pic.twitter.com/kPTMqlm1XD

— ANI (@ANI) May 19, 2023

Additionally, the value of these notes has decreased over time, according to the RBI, and as of 31 March 2023, just 10.8 per cent of the notes in circulation are made up of them.

“About 89 per cent of the Rs 2,000 denomination banknotes were issued prior to March 2017 and are at the end of their estimated lifespan of four-five years. The total value of these banknotes in circulation declined from Rs 6.73 lakh crore at its peak on 31 March 2018 (37.3 per cent of notes in circulation) to Rs 3.62 lakh crore constituting only 10.8 per cent of notes in circulation on 31 March 2023,” the RBI said.

Due to their lack of security features compared to banknotes made after 2005, the RBI has already decided to remove all banknotes from circulation.

The notes that were printed before 2005 are still valid, though. They have merely been removed from circulation in accordance with the accepted worldwide practice of not circulating notes from multiple series at once.

The clean note policy

The clean note policy was put in place by the RBI to make sure that everyone could have high-quality banknotes.

It aims to maintain the credibility of Indian currency by removing counterfeit, damaged, or unfit notes from circulation.

The RBI sets standards for accepted forms of currency and regularly assesses the quality of notes in use.

Banks and other financial institutions are required to withdraw defective or damaged notes from circulation and replace them with new ones under the clean note policy.

In December 2013, as part of its clean note policy, the RBI issued a statement encouraging banks to exchange soiled notes, even those from non-customers, and only provide high-quality clean notes to the general public.

The status of Rs 2000 banknotes

According to the RBI, the Rs 2000 banknote would continue to be accepted as legal money.

The general public is still permitted to transact with and accept payments in Rs 2000 banknotes.

The RBI stated that they were “encouraged” to deposit and/or exchange these banknotes by 30 September 2023.

The fate of these notes beyond 30 September has not been made clear by the RBI.

However, it has stated that until that time, its directives on the Rs 2000 notes will be in effect.

Exchange it with banks

People are urged by the RBI to “approach bank branches for deposit and/or exchange” of these currencies.

Until 30 September 2023, all banks will still accept deposits into accounts and exchanges for Rs 2000 banknotes, the central bank said.

19 RBI Regional Offices with Issue Departments will additionally have the exchange capability available till 30 September.

Up to 20,000 Rs. worth of Rs 2000 bills can be exchanged at once.

You don’t have to go to your own bank; a non-account holder of the bank may exchange Rs 2000 banknotes at any bank branch up to a maximum of Rs 20,000 at a time.

Another option for exchanging Rs 2000 banknotes is through business correspondents, with a daily cap of Rs 4000 for account holders.

The RBI has stated that there are no limits on deposits into bank accounts, “subject to compliance with extant Know Your Customer (KYC) norms and other applicable statutory/regulatory requirements.”

Technically, a person can request numerous swaps in packs of Rs 20,000 at once. However, the Income-tax Department and enforcement agencies are anticipated to take notice of this. It may be challenging to exchange substantial sums of money held in Rs 2000 notes.

RBI has advised individuals to visit its branches or ROs starting on 23 May to exchange their notes, giving banks time to get ready.

It’s not demonetisation!

Bank locations probably won’t experience the same level of confusion and long lines as in 2016.

The notes in the Rs 2,000 denomination will remain legal currency unlike in 2016 when all notes in the Rs 500 and Rs 1,000 denominations were demonetised and could no longer be used as money.

Unlike the prevalent Rs 500 and Rs 1000 notes in 2016, Rs 2000 notes are no longer frequently seen by the general population.

Additionally, the populace was caught off guard when it was decided to withdraw the Rs 500 and Rs 1000 notes.

With inputs from agencies

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