Ever since the Rs2,000 bills were introduced shortly after 2016 demonetisation, they have been a puzzle to the aam aadmi.  An average person who got these notes from ATMs always had a panic attack worrying where these notes will be transacted. Most small shop owners were reluctant to accept these notes; they instead asked for smaller denominations. The actual purpose of these notes were speculated intensly.

The only logical explanation that the experts came up with was that these notes were launched to speed up the process of re-monetisation post the note ban. Gradually, the Rs 2,000 notes went out of circulation as the central bank stopped printing a fresh lot of the currency. Reports, citing an RTI reply, suggested that no new Rs 2,000 denomination currency notes were printed during 2019-20, 2020-21, and 2021-22.

Ultimately, these notes were withdrawn on May 19, 2023. However, the headache for the central bank isn’t over yet. The Reserve Bank of India (RBI) needs to manage the sudden influx of liquidity due to the Rs 2000 note withdrawal. The RBI on August 1 said Rs 3.14 lakh crore worth of Rs 2,000 banknotes, or 88 percent in circulation, have returned to the banking system as on July 31, which is quite a huge amount. Last week, the RBI said banks have to maintain a 10 percent incremental cash reserve ratio (ICRR) from August 12 as part of the central bank’s efforts to drain excess liquidity from the banking system following the withdrawal of the Rs 2,000 currency notes.

The Rs 2000 question

This will be effective from August 12. The public has time until September 3o to deposit their Rs 2000 notes. But, already around 88 per cent of the notes are back in banks.

May be its a time to ask some questions on these bills — except aiding a faster remonetsiation post a hurriedly implemented noteban, did the introduction of the Rs 2000 notes do more harm to the general public than good? The notes created a headache for the government and tax authorities as illegal elements used these bills widely. Going by the data from the income tax department, these notes have constituted a major chunk of the black money seized in recent years.

‘Major chunk’

In November 2019, finance minister Nirmala Sitharaman told Parliament that 43.22 percent of unaccounted cash seized in the financial year 2020 was in the form of Rs 2,000 notes. In the financial year 2018, the Rs 2,000 note made up 67.91 percent of unaccounted cash, while the figure was 65.93 percent for financial year 2019. Consolidated data is not available for 2020-2022 but the trend is likely to be largely in line with the previous years.

Fake currency rackets loved the Rs 2,000 bills. These notes were used rampantly by the fake currency mafia ever since they were introduced. According to media reports, a major chunk of the fake currencies seized in the last three years was in Rs 2,000 denominations. In 2021, the face value of these seized fake notes stood at Rs 4,84,78,000 crore. Also, as many as 2,44,834 fake notes of Rs 2,000 in 2020 and 90,566,000 notes were seized in 2019.

In August, 2022, in a written reply to the Lok Sabha, Minister of State for Finance Pankaj Chaudhary said 2,272 fake currency notes of Rs 2,000 denomination were seized in 2016; 74,898 in 2017; 54,776 in 2018; 90,566 in 2019; and 2,44,834 in 2020. Between 2019 and 2020, there has been a 170-percent rise in fake currency notes of Rs 2,000 denomination, the minister said.

To sum up, the Rs 2,000 notes have been used rampantly by the fake currency mafia ever since it was introduced. On the other side, the common man has faced hardships in transacting with these bills. Besides, going by the data from the IT department, it looks like these notes have constituted a major chunk of the black money seized in recent years. In that sense, termination of the Rs 2,000 notes was a good riddance.

(Banking Central is a weekly column that keeps a close watch and connects the dots about the sector’s most important events for readers.)