Withdrawal of Rs 2,000 note a ‘non-event’, zero impact on economy, monetary policy: Subhash Chandra Garg

22 May 2023 Evaluate

Talking about the Reserve Bank of India’s (RBI’s) recent move to withdraw Rs 2,000 currency note, former finance secretary Subhash Chandra Garg has said that this is a ‘non-event’ and will have zero impact on the economy and monetary policy. He said the higher denomination currency note of Rs 2,000 was pressed into service at the time of demonetisation in 2016 for ‘accidental reasons’ to meet the temporary currency shortage. In a surprise move, the RBI announced withdrawal of Rs 2,000 currency notes from circulation but gave public time till September 30 to either deposit such notes in accounts or exchange them at banks.

With rapid growth of digital payments over the last five-six years, Garg said withdrawal of Rs 2,000 currency notes, which is actually a replacement by other denominations, will not affect total currency in circulation and therefore will have no monetary policy effect. He added ‘Neither will it affect the operation of India’s economic and financial system. There is going to be zero impact on GDP growth or public welfare’. He said it is quite easy to expect almost all the Rs 2,000 currency notes in circulation to come back to RBI and there is unlikely to be any inconvenience or loss to anyone because these notes form a small part of the currency in circulation and not widely used for day-to-day transactions.

Garg further said Rs 2,000 notes were introduced not as a well thought out measure but something which was only available readily to latch on. The government had perhaps approved printing of Rs 2,000 currency notes a few months before demonetisation to introduce a higher denomination note. He added the fate of Rs 2,000 currency note was sealed even before it was introduced and it had to make its way out as soon as possible. He said the process of reducing the circulation of Rs 2,000 notes for its eventual phase-out started soon after demonetisation.

As per an RBI press release, the printing of Rs 2,000 notes was completely stopped in 2018-19. He said with the stoppage of printing of such notes, the path of elimination of these notes was firmly secured and the government printed much larger than normally required Rs 500 currency notes in 2018-19 to facilitate withdrawal of Rs 2,000 notes. Steps to phase out Rs 2,000 notes have brought down the percentage of these notes in circulation to 10.8 per cent in March 2023 from a high nearly 75 per cent in March 2017.

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