From UPSC perspective, the following things are important :
Prelims level : NA
Mains level : RBI regulation of Currency
- The Reserve Bank of India (RBI) has decided to withdraw ₹2000 denomination banknotes from circulation as part of its “Clean Note Policy.”
- The withdrawal is similar to a previous withdrawal of notes in 2013-2014 (and not the demonetization).
Legal Tender Status of ₹2,000 Banknotes
- ₹2000 banknotes will continue to maintain their legal tender status.
- People can use ₹2000 banknotes for transactions and accept them as payment.
- However, the RBI encourages depositing or exchanging the notes by September 30, 2023.
About the ₹2000 Notes
- The ₹2000 denomination banknote was introduced in November 2016 under Section 24(1) of RBI Act, 1934.
- It primarily aimed to meet the currency requirement of the economy in an expeditious manner after withdrawal of the legal tender status of all ₹500 and ₹1000 banknotes in circulation at that time.
Reasons for withdrawal
- Demonetization purpose served: Printing of ₹2000 notes was stopped in 2018-19 as other denominations became available in adequate quantities.
- Clean Note Policy: This aims to provide good-quality currency notes with enhanced security features and withdraw soiled notes from circulation.
- Ending timespan: Majority of the ₹2000 notes were issued prior to March 2017 and have reached their estimated lifespan of 4-5 years.
- Disappeared from circulation: This denomination is not commonly used for transactions, and there is sufficient stock of banknotes in other denominations to meet public requirements.
- People can deposit ₹2,000 notes into their bank accounts or exchange them for banknotes of other denominations at any bank branch.
- The usual deposit process without restrictions and subject to applicable statutory provisions applies.
- Banks have been directed to provide deposit and exchange facilities for ₹2,000 notes until September 30, 2023.
- The facility for exchange up to ₹20,000 at a time will be available at banks and RBI’s Regional Offices from May 23, 2023.
- Banks are instructed to stop issuing ₹2,000 notes immediately.
Impact and financial analysis
- Deposit accretion of banks may improve in the short term, similar to the demonetization period.
- Improved deposit rates may reduce pressure on interest rate hikes and lead to moderation in short-term interest rates.
Clean Note Policy
Previously, banknotes issued before 2005 were withdrawn due to fewer security features.
Notes issued before 2005 are still legal tender but no longer in circulation to maintain consistency with international practices.
- Individuals can seek multiple exchanges in packets of ₹20,000, but this may attract attention from enforcement agencies and the Income-tax Department.
- Large sums of money in ₹2,000 notes may be difficult to exchange.
- It is likely to witness chaos and long queues in bank branches.
FAQs: Exchanging and depositing ₹2,000 Banknotes
- Individuals should approach bank branches for depositing or exchanging ₹2,000 banknotes.
- Deposit and exchange facilities will be available at banks until September 30, 2023.
- Exchange facilities will also be available at 19 RBI Regional Offices.
- There is a limit of ₹20,000 for each exchange transaction.
- Account holders can exchange up to ₹4,000 per day through business correspondents.
- Deposits into bank accounts have no restrictions, but compliance with KYC norms and other regulatory requirements is necessary.
- From May 23, 2023, people can approach bank branches or RBI Regional Offices to exchange their ₹2,000 notes.
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