Here’s why RBI has withdrawn Rs 2,000 notes and what you should do next

The Reserve Bank of India on Friday announced the withdrawal of the Rs 2,000 currency note, while adding it will continue to be legal tender.

The RBI has asked citizens to deposit Rs 2,000 notes in their accounts or get them exchanged at banks from May 23 onwards. This exchange or deposit facility will be available until September 30.

Banks have been asked not to issue notes of such denomination.

RBI said that it expects a period of four months to be enough for citizens to get these notes exchanged from banks. “Most Rs 2,000 notes in circulation are expected to be returned to banks,” the central bank added.

Why was it withdrawn?

The RBI cited the ‘Clean Note Policy’ as the reason behind the withdrawal of recently introduced Rs 2,000 notes.

This policy is aimed at removing damaged, counterfeit, or soiled notes from circulation, and those with lack of usage.

“It has been observed that this denomination is not commonly used for transactions. Further, the stock of banknotes in other denominations continues to be adequate to meet the currency requirement of the public,” RBI said.

The move to withdraw the Rs 2000 note will be a boost to banks’ deposit mobilisation efforts – as was evident during the 2016 demonetisation exercise.

When was the Rs 2,000 note introduced?

Rs 2,000 notes were introduced during the government’s demonetisation exercise in November 2016, wherein the then notes of Rs 500 and Rs 1,000 lost legal tender status.

This new denomination note was introduced due to the currency requirement of the economy, under the RBI Act.

Unlike the usual Renard Series (1, 2, 5 or 10, 20, 50) that the RBI typically follows for currency denomination, the Rs 2000 note was the odd one. A Rs 200 note was also issued in 2017, which completed the 100, 200 and 500 series.

The end of the Rs 2,000 note

The printing of Rs 2,00 notes was stopped in 2018-19 owing to a ‘continuous decline’ in the number of Rs 2,000 notes in circulation.

“The objective of introducing Rs 2,000 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,” the RBI said.

The total value of Rs 2,000 notes in circulation declined from Rs 6.73 trillion at its peak of March 31, 2018 (37.3 per cent of notes in circulation) to Rs 3.62 trillion constituting only 10.8 per cent of notes in circulation as on March 31, 2023.

The central bank said that about 89 per cent of Rs 2,000 banknotes were issued before March 2017, and are now at the end of their estimated life span of 4-5 years.

What to do now?

According to the notification, this is a routine exercise of the RBI and people need not panic.

From May 23 onwards, the Rs 2,000 notes can be deposited in the bank accounts or can be exchanged at banks and 19 regional offices of the RBI.

The central bank has imposed a limit of Rs 20,000 at a time on the exchange of the Rs 2,000 notes.  However, the RBI said the deposits can be made without restrictions.