ExplainerWill India’s move to get rid of highest value banknote hurt its economy?

The central bank has asked citizens to deposit or exchange the 2000-rupee notes by September 30

Analysts say the decision is expected to be less disruptive for economic activity unlike the 2016 withdrawal that triggered chaos

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The 2000-rupee notes were introduced in 2016 to replenish the Indian economy’s currency in circulation quickly after demonetisation. Photo: Reuters

Published: 1:37pm, 20 May 2023

India will withdraw its highest denomination currency note from circulation, the central bank said on Friday. The 2000-rupee note, introduced into circulation in 2016, will remain legal tender but citizens have been asked to deposit or exchange these notes by September 30, 2023.

The decision is reminiscent of a shock move in 2016 when the Narendra Modi-led government had withdrawn 86 per cent of the economy’s currency in circulation overnight.

This time, however, the move is expected to be less disruptive as a lower value of notes is being withdrawn over a longer period of time, according to analysts and economists.

Why did the government withdraw 2000-rupee notes?

When 2000-rupee notes were introduced in 2016 they were intended to replenish the Indian economy’s currency in circulation quickly after demonetisation.

However, the central bank has frequently said that it wants to reduce high value notes in circulation and had stopped printing 2000-rupee notes over the past four years.

“This denomination is not commonly used for transactions,” the Reserve Bank of India said in its communication while explaining the decision to withdraw these notes.

Why now?

While the government and the central bank did not specify the reason for the timing of the move, analysts point out that it comes ahead of state and general elections in the country when cash usage typically spikes.