India withdraws 2000-rupee notes from circulation

INDIA will start withdrawing its highest value currency notes from circulation, the central bank has said, in a move that economists said could boost bank deposits at a time of high credit growth.

The withdrawal of 2,000-rupee notes - which the finance ministry’s top official, T V Somanathan, said would not cause disruption “either in normal life or in the economy” - also comes ahead of elections in four large states at the end of the year and a national ballot in spring 2024.

The RBI has said banknotes in INR 2,000 denomination will continue to be legal tender, which implies a consumer can purchase goods using the currency.

The INR 2,000 denomination banknotes were introduced in 2016 under Section 24 (1) of the RBI Act, 1934, after the withdrawal of legal tender status of all INR 500 and INR 1,000 banknotes in circulation at that time. The demonetization of INR 500 and INR 1,000 notes in 2016 rattled the banking system as Indians flocked bank branches and ATMs to get their notes exchanged to legal tender, and the sudden move left many citizens in anger and dismay at the sheer abruptness of the move.

The withdrawal of the INR 2,000 banknotes, however, is not demonstrative of demonetization and is a move similar to what the RBI has undertaken in the past. The RBI, in 2013-2014, withdrew all banknotes issued prior to 2005 from circulation and citizens were required to exchange those notes by approaching banks in a similar way. The Reserve Bank had also clarified then that the notes issued before 2005 would continue to be legal tender.