Last Friday, the Reserve Bank of India announced the withdrawal of Rs 2,000 notes from circulation. The banking regulator, however, said that the note would remain legal tender. Still, the announcement has set off a rain of fear-filled thoughts in the minds of many and taken them back to the day in 2016 when Narendra Modi announced the demonetisation of Rs 1,000 and Rs 500 notes.
What has caused the apprehension is the RBI’s announcement that the window for exchanging or depositing Rs 2,000 notes will close on September 30. Post-September, what happens to the note? Will it still be legal tender? RBI governor Shaktikanta Das wasn’t categorical on the post-September status of the note. He sort of indicated that he would cross the bridge when he reached it.
A little peep into the past is necessary to understand the pros and cons of the RBI’s decision. How many of us know that the printing of Rs 2,000 notes stopped way back in 2018? According to an RTI reply, no new Rs 2,000 denomination currency notes were printed during 2019-20, 2020-21 and 2021-22.
The RTI reply mentioned that Bharatiya Reserve Bank Note Mudran printed 3,542.991 million pieces of Rs 2,000 notes in 2016-17, which drastically came down to 111.507 million notes in 2017-18 and was further reduced to 46.690 million notes in 2018-19.
After Friday’s announcement, petrol pumps across the country have reportedly seen a sudden rise in cash payments in Rs 2,000 notes. This has pushed the dealers into a “change-less” situation and forced them to send SOS petitions to banks. They have demanded that banks supply greater quantities of small-denomination currency notes to tackle the sudden rush of Rs 2,000 notes. Also, the announcement is believed to have created a “money-making” opportunity for quite a few innovative businesspeople. The grapevine says many jewellers are accepting Rs 2,000 notes at a discount as payments.
What is incomprehensible is the reason for withdrawing the Rs 2,000 note from circulation. If it was introduced to quickly tide over the cash shortage in the wake of the demonetisation of Rs 500 and Rs 1,000 notes in 2016, it could be a transitory arrangement. If the RBI had been transparent and indicated up front that the Rs 2,000 note would have only a finite life, the purported hoarding of these notes would not have taken place and the present confusion could have been avoided. This lack of transparency has, predictably, set tongues wagging. Is the RBI dancing to the tunes of its political masters?
Given that the printing of the Rs 2,000 note was stopped a few years ago and this higher-denomination note was hardly visible among common people, one tends to suspect the intention behind its withdrawal. Piecing together the information trickling in from various quarters, one can surmise that the objective of the move is more political than economic. The timing also suggests the same. With many states headed for elections towards the end of 2023 and the nation set for a general election in 2024, the suspicion is only reinforced.
Should an autonomous institution like the RBI – willingly or otherwise – allow itself to be seen as part of a political chess game? Both the demonetisation and the latest note withdrawal have introduced a sense of uncertainty in people’s mind. The RBI would do well to avoid getting into a trust-deficit situation like this.
K.T. Jagannathan is a financial journalist.