In an unexpected twist of events, almost 75% of India’s ₹2,000 denomination notes, which were recently discontinued, have made their way back to the banking system. The central bank revealed this staggering figure demonstrating that the public has largely complied with the RBI’s directive to return these high-value notes.
The RBI’s latest data shows that out of the initial ₹3.62 lakh crore worth of these banknotes in circulation at the end of March 2023, ₹2.72 lakh crore has been successfully retrieved. That leaves ₹84,000 crore in high denomination currency still circulating among the public.
Why The RBI Withdraw ₹2,000 Notes
Earlier this year, the Reserve Bank of India (RBI) made the decision to discontinue the ₹2,000 denomination note. The move came after the central bank’s analysis showed that these notes were not commonly being used for transactions.
Instead, it seemed they were being hoarded, leading to distortions in the flow of cash. In terms of value, the ₹2,000 notes represented approximately 11% of the notes in circulation as of the end of March 2023, but only 2% of the banking system’s deposit base. This discrepancy further underscored the need for a change.
The initiative to withdraw the high-denomination notes was announced on May 19, 2023. This move was a part of the central bank’s broader strategy to ensure the soundness and efficiency of the cash circulation system. It also aimed at curbing illicit financial activities that often thrive in a high-denomination environment. Since the announcement, the banks and the public have had just over a month to return their ₹2,000 notes.
Public Response and The Path Forward
The public has largely responded positively to the RBI’s decision. As of the end of June 2023, a sum of ₹2.72 lakh crore has been returned to the banks. This accounts for approximately 75% of the total value of ₹2,000 notes in circulation at the time of the RBI’s announcement. It also suggests a high level of public confidence in the banking system and the decision taken by the central bank.
However, the road ahead is still steep. Approximately ₹84,000 crore remains in circulation. The central bank is employing various strategies to encourage the return of the remaining high-denomination banknotes. Banks have been instructed to accept these notes and provide suitable replacements, ensuring a smooth transition for the public.
The recent events surrounding the discontinuation of ₹2,000 denomination notes offer a clear example of the potential benefits of high-level monetary policy decisions. Despite initial concerns, the return of such a significant proportion of the notes to the banks demonstrates public acceptance and successful implementation. The ongoing retrieval process of the remaining high-value notes will be an important area to monitor in the coming months, as it will further reveal the effectiveness of this crucial policy decision.