Withdrawal of Rs 2000 notes to boost deposits, consumption

Though the Reserve Bank of India may have decided to withdraw Rs. 2000 banknotes from circulation as a part of its currency management, the move is likely to boost various macroeconomic parameters.

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On 19 May, 2023, the RBI decided to withdraw the Rs 2000 denomination banknotes from circulation but said they would continue to remain legal tender. However, the RBI has advised banks to stop issuing such banknotes with immediate effect. The Rs 2000 denomination banknote was introduced in November 2016 under Section 24(1) of the RBI Act, 1934, primarily to meet the currency requirements of the economy in an expeditious manner after the withdrawal of the legal tender status of all Rs 500 and Rs 1000 banknotes in circulation at that time.

The objective of introducing Rs. 2000 banknotes was met once banknotes in other denominations became available in adequate quantities. Therefore, the printing of Rs. 2000 banknotes was stopped in 2018–19.

SBI Research, in a report, analysed and argued how the withdrawal of Rs 2000 banknotes could boost bank deposits, repayment of loans, consumption, the RBI’s retail digital currency usage, and overall economic growth.

The other day, RBI Governor Shaktikanta Das said 50 percent of the to-be-withdrawn Rs 2,000 notes had already come back to the system after the May 19 announcement, and of those, 85 percent were through bank deposits.