RBI to withdraw Rs.2,000 notes; but validity continues till Sep 30

Mumbai: In a surprise move, the Reserve Bank on Friday announced withdrawal of Rs 2,000 currency notes from circulation but gave public time till September 30 to either deposit such notes in accounts or exchange them at banks.

Unlike the November 2016 shock demonetisation when old Rs 500 and Rs 1,000 notes were invalidated overnight, the Rs 2,000 notes will continue to be a legal tender till September 30.

The Reserve Bank of India (RBI), however, did not say what would be the status of 2,000 notes in private hands after September 30. Earlier, the government had made it an offence to hold the demonetised Rs 500 and 1,000 notes after expiry of the deposit deadlines.

Banks will exchange the Rs 2,000 notes till September 30 and people holding notes beyond the specified date will not invite legal action, sources said.

In an interview to a news channel, Finance Secretary T V Somanathan said the decision is different from demonetisation of high value currency notes of 2016 and will have no impact on the economy.

When asked on what will happen to the currency notes not deposited before September 30, he said banks will have a proper system to handle it.

Former Finance Secretary S C Garg said the latest move is aimed at reducing dependence on high denomination currency notes and promote digital payments.

Half of the Rs 2,000 denomination notes issued as part of remonetisation were already withdrawn from the system and remaining will go out of system through today's decision, Garg said.

As of March 2023, Rs 2,000 notes made up for almost 11 per cent of currency in circulation.

In a statement, the RBI said it has asked banks to stop issuing Rs 2,000 notes with immediate effect.

While the RBI did not specify a limit for depositing the Rs 2,000 currency notes in bank accounts, exchange of a maximum of Rs 20,000 (10 notes of Rs 2,000) for other currency notes will be allowed at a time.

The move comes amid concerns of the highest denomination notes being used to hoard black money. The RBI had stopped printing Rs 2,000 notes in 2018-19 and the notes were rarely in circulation.

The Rs 2,000 denomination bank note was introduced in November 2016, primarily to meet the currency requirement of the economy in an expeditious manner after the withdrawal of legal tender status of all Rs 500 and Rs 1,000 bank notes in circulation at that time.

The RBI said it has also been observed that Rs 2,000 denomination note is not commonly used for transactions. Further, the stock of bank notes in other denominations continues to be adequate to meet the currency requirement of the public, it added.

"In view of the above, and in pursuance of the 'Clean Note Policy' of the Reserve Bank of India, it has been decided to withdraw the Rs 2,000 denomination bank notes from circulation," it said.

The bank notes in Rs 2,000 denomination will continue to be a legal tender, it added.

The central bank has asked the public to deposit Rs 2,000 bank notes into their bank accounts and/or exchange them into banknotes of other denominations at any bank branch.

"Members of the public are encouraged to utilise the time up to September 30, 2023 to deposit and/or exchange the Rs 2,000 bank notes," the central bank said.

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, it said.

"In order to ensure operational convenience and to avoid disruption of regular activities of bank branches, exchange of Rs 2,000 bank notes into bank notes of other denominations can be made up to a limit of Rs 20,000 at a time at any bank starting from May 23, 2023," the RBI said.

To complete the exercise in a time-bound manner and to provide adequate time to the members of public, the RBI has asked all banks to provide deposit and/or exchange facility for Rs 2,000 bank notes until September 30.

Also, the facility for exchange of Rs 2,000 bank notes up to the limit of Rs 20,000 at a time shall also be provided at the 19 Regional Offices (ROs) of the RBI having Issue Departments from May 23.

As per the RBI, about 89 per cent of the Rs 2,000 denomination notes were issued prior to March 2017 and are at the end of their estimated life span of 4-5 years.

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

In January 2014, the RBI announced withdrawal from circulation all bank notes issued prior to 2005.