The move came more than six years after the Rs 2,000 notes were introduced into the system, along with the demonetization of the Rs 1,000 and legacy Rs 500 notes in November 2016 to meet urgent needs at the time.
The central bank cited a lack of use and the fact that the banknotes were nearing the end of their four to five-year life cycle as reasons for the withdrawal.
RBI: Usual rules for depositing Rs 2,000 bills, limit of Rs 20,000 for each exchange
While the Reserve Bank of India on Friday announced it would withdraw 2,000 rupees worth of banknotes, it gave people the option to deposit those notes with banks or exchange them for notes of a different denomination up to a limit of 20,000 rupees each.
Standard procedures and rules apply to those depositing the banknotes. From May 23, 2023, anyone wishing to exchange them can do so in any bank branch only up to a limit of 20,000 rupees at a time.
“In accordance with the RBI’s ‘clean note policy’, the decision has been made to withdraw the Rs 2,000 notes,” the RBI said in a press release on Friday evening.
At the end of March, there were 2,000 rupee notes worth 3.6 million rupees, accounting for 10.8% of the notes in circulation. This is a significant drop compared to the 6.7 million rupees printed after demonetization (representing 37.3% of total banknotes in circulation). “Furthermore, it has been observed that the 2,000 rupee denomination is not commonly used for transactions, while a sufficient stock of banknotes in other denominations is available to meet the public’s currency needs,” RBI said.
With UPI and payment wallets become mass-produced, any disruption is an unlikely possibility.
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The central bank likened the process to withdrawing banknotes with fewer security features in 2013 and 2014. In January 2014, the RBI announced the confiscation of all banknotes printed before 2005, announcing a three-month grace period. The deadline was later extended to January 1, 2015, and then to June 30, 2016. This extension was possible because the banknotes continued to be legal tender and were only withdrawn from circulation.
In recent months, as other denominations have become readily available, the target of launching the Rs 2,000 note has been met, leading to its cessation of printing in 2018-19, the RBI said.
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Bankers said these notes are not used as often for day-to-day transactions, but the fact that such a large amount remains in the public domain points to their use as a “store of value.”
“As we saw with demonetization, we believe bank deposit growth could improve slightly in the near term. This will ease the pressure on deposit rate hikes and could also lead to a weakening of short-term interest rates,” he said Karthik SrinivasanSenior Vice President, Group Head – Financial Sector Ratings, ICRA Ltd. In this regard, separate guidelines have been issued to the banks.
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In addition to the bank branches, starting May 23, 2023, RBI’s 19 Regional Offices (ROs) with issuing departments will also offer the ability to exchange notes from Rs. 2,000 up to a maximum of Rs. 20,000 at a time.
The RBI has advised banks to stop issuing Rs 2,000 denomination banknotes with immediate effect.
“Now the government should at least accept that their decision to introduce a Rs 2,000 note was wrong. This will likely result in a loss of confidence in the currency itself. Even now, people will panic. Banks must be prepared.” for exchange. There is every possibility that Jan Dhan accounts will be used for exchange. The government should take the necessary precautionary measures, otherwise it could lead to another fiasco,” said Because of Tuljapurkar the All India Bank Employees Association.
The RBI will phase out Rs 2000 notes and remain legal tender