Why this BJP MP’s demand to phase out Rs. 2000 notes questions logic of demonetisation

BJP MP Sushil Kumar Modi’s demand in the Rajya Sabha on Monday to progressively phase out the Rs. 2,000 currency notes has yet again sparked off a discussion about the wisdom of imposing demonetisation in 2016 and introducing notes of higher denomination.

In his zero-hour mention, Modi said that the 2,000-rupee notes have vanished from most ATMs in the country and that there are rumours that they may no longer be legal money shortly. "The government needs to clarify this," he added, adding that the RBI ceased producing Rs. 2,000 notes three years ago.

When the government overnight demonetised existing Rs. 500 and Rs. 1000 notes, it created the 2,000-rupee currency note along with a new 500 rupee note. "There was no logic of bringing a 2,000 rupee note when Rs. 1,000 note circulation was stopped," Modi said and went on to cite examples of developed nations that do not have currency notes of higher denomination.

The MP claimed that the Rs. 2,000 notes were frequently used in narcotics deals and money laundering. “Black money,” he continued, is represented by the Rs. 2,000 notes, the biggest denomination in the country's currency. "There needs to be a phase-out of the Rs. 2,000 notes by the government. The 2,000-rupee notes should be in circulation for a period of two years so that citizens have time to exchange them," he said.

In a way, the Rajya Sabha MP has reiterated what many experts have been saying all along. For instance, former finance minister Yashwant Sinha in an earlier column penned that while demonetisation led to the elimination of Rs. 1,000 notes, surprisingly, they were replaced by a larger denomination, the Rs. 2,000 notes.

“Even back then, people were saying that this setup was absurd. Would it not be simpler for hoarders of black money to stockpile notes of the denomination 2,000 if the government believed that high-denomination currency notes of Rs. 1,000 aided them? No explanation was given by the authorities at the time. It seems like this might be what's happening,” he wrote in a piece titled Why 2000 notes are not being printed, back in 2018.  

The Reserve Bank of India has confirmed in response to an RTI request by IANS that no new Rs. 2,000 denomination currency notes would be created in the fiscal years of 2019–20, 2020–21, or 2021–22. According to the response, the number of Rs 2,000 notes printed by Bharatiya Reserve Bank Note Mudran (P) Ltd dropped from 3,542.991 million in 2016–17 to 111.507 million in 2017–18 and then to 46.690 million in 2018–19.

Meanwhile, officials said that the Rs 2,000 notes were brought out to assist the RBI in replacing the value of the demonetised notes at a faster speed. “The RBI sought a swift remonetisation of the economy. Since over 80 per cent of the cash in circulation was worthless Rs. 500 and Rs. 1,000 notes when demonetisation was announced, even with the RBI's currency presses operating around the clock, they were unable to replace such a vast sum so quickly. Hence, the 2000-rupee notes were preferred. Withdrawal limits were put in place to prevent people from emptying their accounts too quickly, but the bigger denomination of the Rs 2,000 note helped make up the numbers with fewer notes,” a retired bank said explaining RBI’s logic. As of March 31, 2017, Rs 2,000 notes accounted for 50.2% of all money in circulation, the central bank had said back in the day.

While the worry of counterfeit Rs 2,000 notes continues to loom large, NCRB statistics show that between 2016 and 2020, the number of counterfeit Rs 2,000 notes recovered in the country rose dramatically from 2,272 to 2,44,834 pieces.