Reserve Bank Of India’s Announcement On Withdrawal Of 2000 Currency Notes
The Reserve Bank of India (RBI) has made an unexpected announcement, stating that the Rs 2,000 note will be withdrawn from circulation immediately. However, the denomination will still be considered as legal tender. This means that individuals can exchange the Rs 2,000 note for other currency denominations at a bank or deposit it until 30 September.
According to the RBI, the value of these banknotes in circulation has decreased significantly from its peak of Rs 6.73 lakh crore on 31 March 2018, which accounted for 37.3% of the total notes in circulation, to Rs 3.62 lakh crore, representing only 10.8% of notes in circulation as of 31 March 2023. The RBI further stated that the introduction of Rs 2,000 notes achieved its purpose as banknotes of other denominations became more widely available.
The Ghost Of 2016 Demonitization
For individuals who have distressing memories of the demonetization announcement in 2016, which invalidated 80% of the circulating money represented by Rs 500 and Rs 1,000 notes, this recent RBI announcement may appear to provide an opportunity to deposit or exchange the affected denomination with sufficient time and options.
Hurt For Cash Economy AGAIN
However, consider this perspective: What if an individual or a business heavily relies on cash reserves, particularly in a predominantly unorganized economy like India, and possesses a significant amount of Rs 2,000 notes (as many firms still do) to cover expenses such as labor charges and working capital requirements?
Furthermore, individuals engaged in businesses that heavily rely on cash transactions, such as those in the real estate or property sector, are likely to face considerable challenges due to this announcement. Given that a substantial portion of their daily operations still depend on cash transactions, this change will undoubtedly cause significant disruption. It is anticipated that the real estate and construction sectors, along with other cash-reliant businesses, will experience a difficult quarter and ongoing difficulties as a result of this decision.
Daily limit of deposit is too low
Moreover, it appears that the daily limit of Rs 20,000 set for the exchange or deposit of Rs 2,000 notes may have been introduced with the intention of monitoring the rate and volume of deposits made by account holders holding significant amounts of Rs 2,000 notes. This provision could potentially provide centralized agencies, influenced by the Narendra Modi-Amit Shah alliance, with a tool to specifically target certain businesses, individuals, or political opponents.
Therefore, while this measure may seem acceptable and a minor adjustment in RBI’s monetary policy in theory and on paper, its interpretation should be considered in the context of its timing and the potential political and economic implications involved.
BJP Wants To Attack Opposition Cash Before Elections ?
It is noteworthy that the RBI announcement came shortly after the Karnataka election results, where the BJP performed poorly. Additionally, the announcement was made after the closure of Friday’s stock market hours, likely to avoid immediate spillover effects on financial markets or to prevent investor panic.
The deadline for exchanging or depositing the Rs 2,000 notes has been set for 30 September, which coincidentally falls just two months before several state Assembly elections. This timeframe raises suspicions regarding the potential political or electoral motives behind the government’s request to the RBI for announcing this measure at this particular time.