Optics of Demonetisation

The RBI has claimed that Rs 2,000 notes are being withdrawn from circulation as they have served their purpose of meeting cash requirements after the 2016 demonetisation. But declining circulation figures indicate that the note was already on its way out. Is there something more than meets the eye?

- Rajat Mishra

When the Reserve Bank of India (RBI) announced its decision to withdraw Rs 2,000 notes from circulation on May 19 this year, it brought about a sense of déjà vu, reminding everyone of the chaos and panic that had gripped the country in 2016 when the government demonetised Rs 500 and Rs 1,000 notes. However, experts and economists have dubbed the current move "inevitable".

In its release, the RBI stated that Rs 2,000 notes had been introduced in November 2016 primarily to meet the currency requirement of the economy in an expeditious manner after demonetisation. That objective was served once notes in other denominations became available in adequate quantities. Subsequently, printing of Rs 2,000 notes was stopped in 2018-19.

"Rs 2,000 notes were introduced as a temporary measure in 2016. You needed some currency to re-monetise the economy quickly. The decision to withdraw is not shocking; it was very much on the cards," says Madan Sabnavis, chief economist, Bank of Baroda, adding, "This time, this is done in a sensible manner, as ample time has been given [for the exchange of notes]."

'Not a Big Deal'

According to the RBI data, the total value of Rs 2,000 notes has declined to Rs 3.62 lakh crore, or 10.8% of the notes in circulation, on March 31, 2023, down from Rs 6.73 lakh crore, or 37.3%, on March 31, 2018. The circulation of these notes was at its peak in 2017-the year after demonetisation-when it made up 50.2% of the total value of bank notes in circulation, according to Quant Eco Research, an economics research firm.