The Reserve Bank of India decided to withdraw 2,000 bank notes from circulation on May 19, 2023, even though the notes remain legal tender. Holders of 2000 rupee notes have till September 30 to deposit or exchange them. The total value of Rs. 2000 banknotes in circulation has fallen from Rs 6.73 lakh cr at its high on March 31, 2018 (37.3% of Notes in Circulation) to Rs 3.62 lakh cr on March 31, 2023, or only 10.8 percent of Notes in Circulation. The general public, according to the circular, may deposit Rs 2000 banknotes into their bank accounts and/or swap them for banknotes of other denominations at any bank branch.
The exchange of Rs 2000 banknotes into banknotes of other denominations is limited to Rs 20000 at a time. Way back in 2016, when demonetization took place, it had a significant influence on the digital business, with Paytm, Razorpay, Mobikwik, Freecharge, Shopclues, and online food ordering and delivery start-ups benefiting greatly. Because a fraction of 3 lakh crore may come into the banking sector, the decision may relieve pressure on deposit rate rises and enhance banking system liquidity. The deadline for exchanging/depositing the Rs 2,000 note denomination has also been set at 30 September, only two months before many state Assembly elections.
Former Standard Chartered CEO Peter Sands has stated that high-denomination banknotes are anachronistic in a modern economy due to the availability and efficacy of electronic payment alternatives.
Money power is key in every election, and elections in large states are critical for all parties in the run-up to the Lok Sabha elections in 2024. Elections to the existing assemblies of Madhya Pradesh, Chhattisgarh, Telangana, and Mizoram will take place on or before the end of this year. The Karnataka Assembly elections provided the BJP with a wake-up call. Drawing a line from the Karnataka elections, there is news that Rs 2,000 denomination notes are being removed in order to prevent money power from playing a role in the 2024 general elections against the ruling party.
Cash has fallen in both legitimate and illicit economies, although it is still used in many criminal transactions. Monetary authorities may have taken a step toward making cash-based illegal transactions far more difficult by removing high-denomination notes. High-denomination paper currency is used to facilitate tax fraud, finance terrorist activities, and fuel underground economies in criminal activities and human trafficking. Academics have contended, and Kenneth Rogoff's book "The Curse of Cash" backs up the assertion, that a significant amount of high-denomination paper currency is used to facilitate tax evasion, finance terrorist activities, and sustain underground economies in illegal narcotics and people trafficking. By banning high-denomination notes, the RBI is aiming to increase the frictional costs of unlawful activity. It is unclear if the RBI intends to reintroduce the Rs 1,000 currency or if Rs 500 notes would become the largest denomination currency.