Central Idea

• The Reserve Bank of India (RBI) has decided to withdraw ₹2000 denomination banknotes from circulation as part of its “Clean Note Policy.”
• The withdrawal is similar to a previous withdrawal of notes in 2013-2014 (and not the demonetization).

Legal Tender Status of ₹2,000 Banknotes

• ₹2000 banknotes will continue to maintain their legal tender status.
• People can use ₹2000 banknotes for transactions and accept them as payment.
• However, the RBI encourages depositing or exchanging the notes by September 30, 2023.

About the ₹2000 Notes

• The ₹2000 denomination banknote was introduced in November 2016 under Section 24(1) of RBI Act, 1934.
• It primarily aimed to meet the currency requirement of the economy in an expeditious manner after withdrawal of the legal tender status of all ₹500 and ₹1000 banknotes in circulation at that time.

Reasons for withdrawal

• Demonetization purpose served: Printing of ₹2000 notes was stopped in 2018-19 as other denominations became available in adequate quantities.
• Clean Note Policy: This aims to provide good-quality currency notes with enhanced security features and withdraw soiled notes from circulation.
• Ending timespan: Majority of the ₹2000 notes were issued prior to March 2017 and have reached their estimated lifespan of 4-5 years.
• Disappeared from circulation: This denomination is not commonly used for transactions, and there is sufficient stock of banknotes in other denominations to meet public requirements.

Withdrawal process

• People can deposit ₹2,000 notes into their bank accounts or exchange them for banknotes of other denominations at any bank branch.
• The usual deposit process without restrictions and subject to applicable statutory provisions applies.
• Banks have been directed to provide deposit and exchange facilities for ₹2,000 notes until September 30, 2023.
• The facility for exchange up to ₹20,000 at a time will be available at banks and RBI’s Regional Offices from May 23, 2023.
• Banks are instructed to stop issuing ₹2,000 notes immediately.

Impact and financial analysis

• Deposit accretion of banks may improve in the short term, similar to the demonetization period.
• Improved deposit rates may reduce pressure on interest rate hikes and lead to moderation in short-term interest rates.

Key issues

• Individuals can seek multiple exchanges in packets of ₹20,000, but this may attract attention from enforcement agencies and the Income-tax Department.
• Large sums of money in ₹2,000 notes may be difficult to exchange.
• It is likely to witness chaos and long queues in bank branches.

FAQs: Exchanging and depositing ₹2,000 Banknotes

• Individuals should approach bank branches for depositing or exchanging ₹2,000 banknotes.
• Deposit and exchange facilities will be available at banks until September 30, 2023.
• Exchange facilities will also be available at 19 RBI Regional Offices.
• There is a limit of ₹20,000 for each exchange transaction.
• Account holders can exchange up to ₹4,000 per day through business correspondents.
• Deposits into bank accounts have no restrictions, but compliance with KYC norms and other regulatory requirements is necessary.
• From May 23, 2023, people can approach bank branches or RBI Regional Offices to exchange their ₹2,000 notes.

Get an IAS/IPS ranker as your personal mentor for UPSC 2024 | Schedule your FREE session and get the Prelims prep Toolkit!

Get an IAS/IPS ranker as your 1: 1 personal mentor for UPSC 2024

Attend Now