Rs.2000 bank notes withdrawn from circulation

 ‘Demonetisation’ 2016 and ‘Withdrawal’ 2023

Exchange of Rs.2000 bank notes in cash for other denominations or remittance of the said bank notes into the customers’ accounts, through the commercial banks, comes to a close today. The withdrawal of all the series issued under Rs.2000 bank notes with effect from 23^rd May 2023, through the banks and regional offices of Reserve Bank of India (RBI), resulted in a total remittance value of Rs.3.43 lac cr.  (Rs.13000 cr. still lying with the public). The remaining amount can also be exchanged or credited to customers’ accounts, from now on, through the 19 regional offices of RBI, till instructions to the contrary are issued by RBI. Though, the terminology used is ‘withdrawal from circulation’, it is in effect ‘demonetization’ as Rs.2000 denomination is no longer in use for transactions. The exercise is rather smooth, as compared to the one implemented in 2016. There are several factors, which made the present ‘withdrawal from circulation’ a smooth affair. A comparison of ‘demonetization of Rs.500 and Rs.1000 notes in 2016’ with ‘withdrawal of Rs.2000 in circulation in 2023’ reveals what were the reasons for the seamless carryout of the current exercise. 

Description	Rs.500 and Rs.1000 notes -   Demonetisation 2016	Rs.2000 notes  Withdrawal 2023
Time Period for exch.	50 days (from 11.11.16 to 30.12.16)	137 days (from 23.05.23 to 07.10.23)
Demonetised/ Withdrawn notes	Rs.500 and Rs.1000 bank notes	Rs.2000 bank note
Demonetised to total money in circulation	86%	10%
Value of notes demonetized	Rs.15.3 lac cr.	Rs.3.56 lac cr.
Amount returned	Almost the entire amount	96% so far (Rs.3.43 lac cr.)
Other notable restrictions	.     1. ID proof insisted for exchange in cash.       2. Ceiling for exchange in cash is fixed per person.   3.Restrictions placed on cash withdrawals of other denominations also in the branch counters and ATMs (86% value demonetized and other denominations  were limited in value)	1. ID proof for cash exchange is left to individual banks 2. Ceiling in exchange in cash for other denominations is fixed at Rs.20,000 at a time and not per person. (So same person can exchange any no. of times during the day over a period)

In short, (i) the longer period for exchange (ii) continuance of the legal tender status not in doubt (iii) restriction on exchange in cash for other denominations is only per time and not per person, with no mandatory ID proof for exchange (iv) no restrictions on cash withdrawals through other denominations, both at branches and ATMs (v)  permitting freely transactions in the said note (Rs.2000) among the public, which enabled the public to remit/pay for their transactions with the firms/ shops/ government departments /corporations (all of which, having KYC compliant accounts with banks, in turn remitted to their accounts) have together enabled the public, the banks and ROs of RBI to complete the exercise in 2023 in a smooth manner. The assurance that the remaining Rs.2000 bank notes can be remitted through ROs of RBI either in person or through the post offices across India removes any other apprehension in the minds of public about the legal status or exchange.

Few Questions, however, remain, which may or may not get an answer in the future.

(a)  Is it an exercise to implement ‘the clean note policy’ of RBI or is it an exercise to bring out the monies, not seen used for public transactions?

(b)  Under both the assumptions, fresh money, not seen used, of app. Rs.3.43 lac cr. is brought into money in circulation or in the deposit accounts of banks. When repo rate was raised by 250 bps till Feb 23 (in a little over six months period) to bring down inflation, is the time chosen by RBI for this decision justified?

(c)   The balances in PMJDY got a boost during 2016, when demonetization of Rs.500 and Rs.1000 notes was implemented? Whether any such trend noticed this time?

(d)  As part of anti-money laundering, banks have to examine submission of suspicious transaction reports (STRs) to agencies concerned, when the cash remittance exceeds a limit. Whether the STRs submitted during this period of ‘withdrawal of Rs.2000 bank note from money in circulation’, showed an increase or was it in line with the past average? 

Finally, during the period of demonetization in 2016, few persons were arrested/charged for trying to exchange the demonetized circumventing the procedures outlined.  Unfortunately, some bank officials were also suspended/ dismissed from service for helping the said offenders. I missed reading the final results in such instances. There were also genuine cases of a few residents/ non-residents, who missed the deadline in exchanging the demonetized Rs.500/Rs.1000 bank notes, and are still holding onto the said notes with a faint hope that the government may permit them to exchange the notes one day. 

While nothing can be said in respect of the offenders/accomplices in exchanging the demonetized notes through unfair means, except that let the law take its own course, I feel there is a ground for extending one more option to the genuine few, who are still left with the demonetized Rs.500/ Rs.1000 notes (not many in numbers), to prefer their claim, if they can substantiate their claims with reasons. 

Regards 

V. Viswanathan

7^th October 2023.