RBI reports 76% of ₹2,000 notes returned

RBI reports 76% of ₹2,000 notes returned

Context : 

The Reserve Bank of India (RBI) asked the general population to use the next three months to deposit and/or exchange the 2,000 banknotes that were in circulation as of May 19, 2023, as 76% of those notes had since been returned.

What was the purpose of introducing Rs. 2000 notes?

  • Announcing demonetization: Prime Minister Narendra Modi unexpectedly announced on November 8, 2016, that the present 500 and 1000 rupee notes would no longer be accepted as legal money.
  • Demonetization’s goal: Demonetization’s main goals were to reduce “black money” (undeclared income), do rid of counterfeit money, fight corruption, and stop the funding of illicit acts like terrorism.
  • Retraction of 500 and 1000 Rupee Notes: Following the announcement, the 500 and 1000 rupee notes were taken out of circulation. A constrained time was given to people to exchange or deposit their old money in banks.
  • New Denominations: The Reserve Bank of India (RBI) introduced new banknotes in a range of denominations to replace the previous money. The 2000 rupee note was one of them, and it was released to allow for greater transactions and effectively store value.
  • Features: The new 2000 rupee note included cutting-edge security measures, including as colour-shifting ink, see-through registers, latent pictures, and other components to deter counterfeiting. Additionally, it included updated visual and design elements.

What were the advantages of demonetization?

  • Currency Stabilisation: Demonetization can be used as a strategy to maintain currency stability, combat inflation, stop money fraud, and foster formal economic activity.
  • Curbing Black Money: The government’s justification for demonetization is that it helps pump out black money, or unaccounted income held in cash, which can broaden the tax base, lower corruption, and combat crime.
  • Promotion of Digitization: Demonetization can boost transaction digitisation, formalise the economy, increase transparency, and lower the cost of currency management. It can also increase tax collections for the government and improve the convenience and effectiveness of the payment system.

How did it fail in its goal?

  • Temporary Slowdown: Due to the disruption created by the withdrawal of old currency and the limited supply of new currency, the demonetization process may cause a temporary slowdown in economic activity. This may affect consumer and company spending.
  • huge Costs: Demonetization requires major administrative costs, such as printing new currency notes, calibrating ATMs, and informing people about the changes. These expenses may put a burden on the government’s finances and take money away from other areas.
  • Impacts: Cash-driven industries, like retail, hospitality, and small enterprises, may be negatively impacted by demonetization

Why was it removed from the market?

  • Currency management: The RBI’s efforts to maintain a reliable and secure currency system include the elimination of 2000-rupee banknotes.
  • Post-Demonetization Response: Following the elimination of the 500 and 1000 rupee notes during the demonetization operation, the 2000 rupee notes were created in 2016 to satisfy immediate financial needs.
  • Printing Stopped: The printing of 2000 rupee notes was discontinued in 2018–19 because the initial goal of satisfying the country’s currency needs had been accomplished and there was a sufficient supply of other denominations.
  • Reduced Circulation: As of March 31, 2023, 10.8% of the total amount of notes in circulation were banknotes worth 2000 rupees.
  • Minimal Effect on the Economy: It is not anticipated that the withdrawal of 2000 rupee notes will significantly impact daily life or the economy. The impact, according to the governor of the RBI, will be “very very marginal” because there is enough supply of banknotes in other denominations.
  • The objective of Curbing Black Money: The removal of higher-value notes is viewed as a reasonable form of demonetization that can aid in reducing corruption, black money, and counterfeiting.
  • Increase in Bank Deposits: Economists predict that the withdrawal will lead to a rise in bank deposits, particularly during a period of rapid credit expansion. This might lower lending rates and help the economy become more formally organised.

What was reported in the recent news regarding 2000 rs notes?

  • The Reserve Bank of India (RBI) said that as of May 19, 2023, 76% of the 2,000 banknotes in use have been returned. This indicates that 76% of the 2,000 banknotes in circulation had been returned to the RBI.
  • The RBI advised the general public to deposit or swap the last 2,000 banknotes within the next three months. This suggests that the RBI set a deadline for people to finish returning or exchanging the 2,000 rupees they had in their possession.
  • 2,000 banknotes worth a total of 2.72 lakh crore were removed from circulation from the time of the announcement on May 19 and June 30, 2023. This means that individuals returned or exchanged a significant amount of ₹2,000 banknotes during that period.
  • A total of 2,000 banknotes totalling 0.84 lakh crore were still in use as of June 30, 2023. This shows that a sizeable number of the 2,000 banknotes were still in use at the time despite efforts to have them recalled.
  • The use of the returned 2,000 banknotes was disclosed by the RBI. According to the report, deposits made up almost 87% of the entire amount of returned banknotes. This shows that a sizable portion of the returned currency was placed into financial institutions.