BL Explainer. ₹2,000 notes now withdrawn. How is this different from demonetisation in 2016?

The RBI has decided to withdraw ₹2,000 notes from circulation, but it has specified that these will continue to be legal tender.

Members of the public have been asked to deposit their holding of ₹2,000 notes with banks or exchange them with notes of other denominations such as ₹500 or ₹100.

The exchange of notes can be done until September 30, 2023 and there is a limit of ₹20,000 in each transaction. Deposits of ₹2,000 notes can be done without any limit.

Exchange of ₹2,000 notes can be done in any branch of a bank or regional office of the RBI. There shall be no fee levied on an such exchange.

Can the ₹2,000 notes be used for buying any goods or services, pay debt, etc.?

Yes, they can be used to buy anything, pay debt etc. since they are still legal tender. But note, that stops after September 30, 2023.

People can use these for purchases only in the next four months. But then, the seller may not want to accept these notes since he will then have to go to a bank to convert them in to currency of other denomination.

Also read: What the Centre’s decision to scrap ₹2,000 note means for Indian economy

What is the difference between demonetisation of 2016 and this exercise?

Well, the government seems to have learnt its lessons. So, they have not banned the ₹2,000 note altogether but allowed them to be valid until September end. There is unlikely to be a panic.

Two, the ₹2,000 notes account for only 10.8 per cent of currency in circulation and these notes in circulation have halved since 2018. The RBI has stopped printing them since 2018-19. This is unlike in 2016 when everyone was holding ₹1,000 and ₹500 notes which were worthless and had to be exchanged with immediate effect in to other notes, which were scarce.

Three, with notes of other denominations such as ₹500, ₹200 and ₹100 being in adequate supply, economic activity is unlikely to be impacted.

What is the intention behind this move?

The RBI is saying that the ₹2,000 notes have been around for four to five years and are therefore dirty and soiled and need to be removed from circulation.

But the actual reason could be to hit the black money hoarders who will be deploying them in a big way in the assembly and Lok Sabha elections.

It’s well known that the black economy in the country is very big and most businesses, professionals and entities do not disclose their entire income to the tax authorities. Such money will be stashed away in ₹2,000 notes and will now have to be converted into other denominations.

Will the IT department be on high alert now?

Quite likely. Anyone who makes frequent trips to the bank will be examined. High-value deposits will be under the scanner. Data collected from banks is likely to be used for further investigation. The mules are likely to be put to use once again to convert the notes. Lot of drama expected in the coming months.

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