From May 23, currency exchange is permitted with a limit of Rs20,000 per transaction.
On Friday, the Reserve Bank of India (RBI) stated that its biggest denomination note, the Rs 2,000, will no longer be in use but said that the notes would still be accepted as legal cash. Until September 30, existing Rs 2,000 notes can be deposited or exchanged in banks. However, a “Rs 20,000 at a time” cap was imposed.
When the Rs 500 and Rs 1,000 notes were withdrawn in November 2016 as part of demonetization, the central bank urged the public to deposit the new Rs 2,000 notes into their bank accounts or exchange them for notes of other denominations at any bank branch. Additionally, it advised banks to stop printing Rs 2,000 notes immediately.
“In order to ensure operational convenience and to avoid disruption of regular activities of bank branches, exchange of Rs 2,000 banknotes can be made up to a limit of Rs 20,000 at a time, at any bank starting from May 23,” it said.
“To complete the exercise in a time-bound manner and to provide adequate time to the members of public, all banks shall provide deposit and/ or exchange facility for Rs 2,000 banknotes until September 30, 2023,” it said.
The RBI stated, “Deposit into bank accounts can be made in the usual manner, that is, without restrictions and subject to extant instructions and other applicable statutory provisions.”
Starting on May 23, the 19 regional offices of the RBI with issue divisions will additionally offer the ability to swap notes worth Rs 2,000 up to a maximum of Rs 20,000 at a time.
An hour after the announcement, a senior Reserve Bank of India official stated: “This is a routine exercise and a similar withdrawal of currency notes which had been printed before 2005 was done by the Government in 2013-2014. So nothing more should be read into this move this time around too. This is what other countries, including the United States do from time to time.”
“One, there was the issue of soiled Rs 2,000 notes lying with the RBI. The other was that Rs 2,000 notes are not popular and they are just lying around. They have run their life cycle. Even at the peak of their being in circulation, they did not comprise much of the currency in circulation and, at present, are only 10%-11% of the total currency. When the demonetization of Rs 500 and Rs 1000 notes was done in 2016, they comprised 80% of the total currency in circulation. So there is a huge difference.”
When asked why, the RBI official gave many explanations. “One, there was the issue of soiled Rs 2,000 notes lying with the RBI. The other was that Rs 2,000 notes are not popular and they are just lying around. They have run their life cycle. Even at the peak of their being in circulation, they did not comprise much of the currency in circulation and, at present, are only 10%-11% of the total currency. When the demonetization of Rs 500 and Rs 1000 notes was done in 2016, they comprised 80% of the total currency in circulation. So there is a huge difference.”
When asked if the Finance Ministry had been consulted, the official responded: “Such a decision would not be made by the RBI alone.”
The RBI estimates that 89% of the Rs 2,000 denomination notes were printed before March 2017 and are nearing the end of their four- to five-year expected lifespan. “The total value of these banknotes in circulation has declined from Rs 6.73 lakh crore at its peak as on 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,” the statement read.
The RBI made similar efforts to remove notes from circulation in 2013–2014.
RBI decides to withdraw ₹2000 denomination banknotes from circulation, will continue as legal tender pic.twitter.com/ODgJQPted4
— News Journal (@Newsjournal_in) May 20, 2023
The introduction of the Rs 2,000 note in November 2016 was made possible by Section 24(1) of the RBI Act 1934, principally to quickly address the country’s currency needs following the loss of the legal tender status of all Rs 500 and Rs 1,000 notes in use at the time.
“The objective of introducing Rs 2,000 banknotes was met once banknotes in other denominations became available in adequate quantities. Therefore, printing of Rs 2,000 banknotes was stopped in 2018-19,” the RBI said, adding that “it has also been observed that this denomination is not commonly used for transactions” and “the stock of banknotes in other denominations continues to be adequate to meet the currency requirement of the public”.