Six years on, cash usage grows, but Rs 2000 banknote turns into collector’s item
The printing of new notes of this denomination was halted from 2019, nearly three years after their introduction following demonetisation on November 8, 2016
Today marks six years since the Modi govt executed its demonetisation move. But have you ever wondered what became of the purple-coloured Rs 2,000 notes introduced to replace the demonetised Rs 1000 and Rs 500 notes currency? Since its introduction in 2016, the Rs 2,000 banknote's circulation has been on the decline. Its production fell by 12.60 per cent, from 24,510 lakh in 2021 to 21,420 lakh in 2022 (from 27,398 lakh in 2020).
According to bankers, the problem stems from the Reserve Bank of India's failure to print or supply Rs 2,000 notes. Rs 500 and Rs 1,000 notes account for 86.4 per cent of the total Rs 16.41 lakh crore in circulation.
The RBI had previously confirmed the same and according to its annual report, there was no new supply of Rs 2,000 notes in FY22.
Also, the printing of new notes of this denomination was halted from 2019, nearly three years after their introduction following demonetisation on November 8, 2016. At that time, Rs 500 and Rs 1,000 notes accounted for 86.4 per cent of the total Rs 16.41 lakh crore that was in circulation.
According to information previously shared by the government in the Lok Sabha, no new indent for printing Rs 2,000 notes was given to the RBI during the last two fiscal years (FY20 and FY21). The central bank’s data also shows a steady decline in both the volume and value of these notes.
While volumes fell from 32,910 lakh pieces in 2019 to 24,510 lakh pieces at the end of March 2021, the value also fell from Rs 6,58,199 crore to Rs 4,90,195 crore.
In terms of value, the share of Rs 500 and Rs 2,000 banknotes accounted for 85.7 per cent of the total value of banknotes in circulation on March 31, 2021, compared to 83.43 per cent on March 31, 2020.
For the two weeks ending on October 8, 2021, the amount of cash in circulation hit a new all-time high of Rs 28.30 lakh crore, according to data from the Reserve Bank of India.
Currency used in India has reached unprecedented levels over the past six years. Despite the demonetisation drive, cash usage is as robust as it was six years after, as shown by recent data from the RBI showing cash usage of Rs 30.88 lakh crore as of October 2022.
Even though digital transactions have increased, cash in circulation has grown by 9.2 per cent as of March 18th, 2022.
As of March 2022, the total amount of money withdrawn from ATMs was Rs 262,539 billion, up from Rs 251,075 billion in March 2020.
The RBI advises the government on printing money or discontinuing circulation of notes of a specific denomination based on its assessment of currency needs in the system.
"Though it is still very much valid, few customers bring Rs 2000 notes for transactions. Due to the scarcity of new notes in currency chests, Rs 500 notes have almost completely replaced them," says Viren Shah, president of the Federation of Retail Traders Welfare Association in Mumbai.
The decision to discontinue printing the Rs 2000 notes stems from criticism that the high-denomination banknote was being used for hoarding, tax evasion, and money laundering.
According to a senior banker, the only benefit of the new Rs 2,000 note was that it made carrying cash around easier. Beyond that benefit, India would spend less on the provision of currency notes. The Reserve Bank of India spent Rs 3 per note in 2016. The logistics costs are not included here. “The cost-value ratio has only gotten better since Rs 2,000 notes were introduced. However, the advantages stopped right there,” the banker said.
Opponents of the Rs 2000 note idea said that by encouraging the circulation of large bills, a country risks both the creation of black money and the introduction of counterfeit bills. They pointed out that high-denomination counterfeit currency can be easily reproduced at a low cost.
“Remember how many merchants were hesitant to take the Rs 500 note because of the risk of counterfeiting? If you think that's bad, just think about what would happen if counterfeit Rs 2,000 notes had gotten into circulation. The potential for inflation is significantly increased by high-value notes,” M Govind Rao, noted economist and member of the 14th finance commission said.