Here's What Experts Say On Withdrawal Of Rs 2,000 Banknotes
The Reserve Bank of India's decision to withdraw Rs 2,000 currency notes from circulation is par for the course, experts said.
Those worried about the fate of the Rs 2,000 banknotes in their possession can breathe easy, too, as they will remain legal tender even after Sept. 30, the last date to exchange or deposit them, according to experts.
The denomination had fulfilled its purpose and was on its way out, they said.
Withdrawal of old notes is a standard practice by the Reserve Bank of India, former Deputy Governor Rama Subramaniam Gandhi said. However, in this case, no new series will be introduced.
One of the consequences is stocking of black money, which can be brought down as it makes it easier to hoard large amounts of cash, Gandhi said. "This will discourage black money accumulation."
While the central bank may consider introducing the Rs 2,000 denomination for the central bank digital currency, it isn't necessary to have high denominations for making such transactions, according to Gandhi.
While it is in the realm of the RBI to withdraw bank notes, the deviations in this case would have required a discussion with the government as well, he said.
According to Gandhi, the RBI was unlikely to bring back Rs 1,000 notes because of a jump in digital transactions.
The Rs 2,000 notes came in handy in 2016 as the economy was to be re-monetised after the note ban, former Finance Secretary Subhash Chandra Garg told BQ Prime. But the denomination is now at the end of its journey, with the RBI decision today only expediting the inevitable, he said.
Garg said the Rs 2,000 note was brought in as a safety wall or to use as an escape arrangement and it was "never" intended to be kept for long in the system. This is the reason that very soon after it served its purpose, it would have stopped being printed, he said. And over the last few years, it has increasingly gotten withdrawn from the system.
The RBI has only expedited the process by taking this measure, he said.
Garg said that before demonetisation in 2016, the RBI had actually proposed that "we should bring Rs 2,000, Rs 5,000, Rs 10,000 notes" because the Indian currency notes' value is very small. "Rs 500 note is only about $6–7, Rs 1,000 is only about $12–13. How much value can one buy with this note?"
It was "not incorrect" to withdraw Rs 500 and Rs 1,000 notes, but it was "ironical that you used a higher denomination note to re-monetise the economy", Garg said.
During demonetisation, the currency did not continue to be legal tender, but this time it is not demonetisation as Rs 2,000 currency has not been declared as a non-legal tender, said Ashvin Parekh, managing director at Ashvin Parekh Advisory Services.
"You can still settle your transaction with it," he said.
Parekh said that after Sept. 30, the person whom the Rs 2,000 note is issued might not accept it and ask for other denomination notes, and this will help to gradually phase out the currency from circulation.
“RBI is better off not doing Rs 1,000 notes,” he said.