Why has the RBI withdrawn Rs 2,000 notes?

Source: The post is based on the article “Why has the RBI withdrawn Rs 2,000 notes?” published in Indian Express on 20th May 2023

What is the News?

The Reserve Bank of India (RBI) has decided to withdraw the Rs 2000 denomination banknotes from circulation. 

When were Rs 2000 denomination banknotes introduced?

Banknotes of ₹2,000 denomination were introduced after ₹1000 and ₹500 banknotes were demonetised on November 8, 2016.

Why are Rs 2000 denomination banknotes being withdrawn now?

Objective fulfilled: The ₹2000 denomination banknotes were introduced primarily with the objective to meet the currency requirement of the economy in an expeditious manner after the withdrawal of the legal tender status of all ₹500 and ₹1000 banknotes in circulation at that time.

– With the fulfilment of that objective, the printing of ₹2000 banknotes was stopped in 2018-19. A majority of the present ₹2000 denomination notes were issued prior to March 2017 and are at the end of their estimated life span of 4–5 years.

No longer used that much for transactions: The ₹2000 denomination banknotes are no longer commonly used for transactions. Besides, there is adequate stock of banknotes in other denominations to meet currency requirements.

Clean Note policy of RBI: The Clean Note Policy seeks to give the public good-quality currency notes and coins with better security features, while soiled notes are withdrawn out of circulation. 

– The RBI had earlier decided to withdraw from circulation all banknotes issued prior to 2005 as they have fewer security features as compared to banknotes printed after 2005. However, the notes issued before 2005 continue to be legal tender. 

Will the Rs 2000 banknotes continue to be legal tender?

The Rs 2000 banknote will continue to maintain its legal tender status. Members of the public can continue to use Rs 2000 banknotes for their transactions and also receive them in payment.

However, they are encouraged to deposit and/ or exchange these banknotes on or before September 30, 2023.

What is the value of Rs 2000 notes in circulation currently?

About 89% of the Rs 2000 denomination banknotes were issued prior to March 2017, and are at the end of their estimated 4-5-year lifespan. 

The total value of these banknotes in circulation has declined from Rs 6.73 lakh crore at its peak of March 31, 2018 (37.3% of notes in circulation) to Rs 3.62 lakh crore, constituting only 10.8% of notes in circulation on March 31, 2023.