IBSPECIAL

The Rs 2,000 note is a cursed currency. Taking birth during the dark days of demonetisation in November 2016, it caused immense inconvenience to ordinary people who struggled to use it for buying daily essentials at a time when supply of physical money was made scarce.

Though it took pride in being the highest-value banknote during its life journey, its infant years were spent when small businesses shut down across the country due to cash flow issues and many jobs were lost as the economy slowed down. It never had the opportunity of winning popularity from then on and, a little more than three years later, Covid began to ravage India’s economy.

The Magenta-coloured Rs 2,000 notes came at an unfortunate time when many in the workforce were handed pink slips. The unemployment rate hit a 45-year high of 6.1% during 2017-18, government data showed. 

The Rs 2,000 note was never a currency that the blue-collared workers could identify with. As low-value purchases marked their daily routine, they found it extremely difficult to change it for lower denomination notes. 

A 56-year-old labourer, staying alone in the slums of Mumbai, said his association with the newly-introduced currency note was very troublesome. “Of what use can the Rs 2,000 note be to me? For my kind of purchases, it is most often a struggle to make the seller accept it without a grumble.” 

If the Rs 2,000 note had any case for its right to exist, it was to quickly fill the gap in currency circulation caused by the sudden demonetisation of Rs 500 and Rs 1,000 notes. It was a mammoth task to take up as the Rs 500 and Rs 1,000 notes accounted for 86% of the economy’s currency in circulation by value. Since the Rs 2,000 currency was introduced in a new size, the ATMs in the country had to also be recalibrated to dispense these notes.

Despite a bumpy ride, the Rs 2,000 note did much of the remonetisation during the fag end of 2016 and early 2017 when there was a systemic shortage of cash. It watched people stand in long queues to exchange the scrapped Rs 500 and Rs 1,000 notes at bank branches till 30 December 2016 and at ATMs till the withdrawal limit was removed on 13 March 2017. 

But as the printing and circulation of the new Rs 500 notes began, the Rs 2,000 notes relaxed and took a backseat. The lower denomination Rs 500 note was more in tune with the reality of the economy and began its reconnect with the people.

In all fairness, the Rs 2,000 note looked regal with its long, slim and purple-pink image. Its hierarchical position was also well established as next below it was the Rs 500 note, which had to play the role of a huffing workhorse to replenish currency in circulation at a faster pace. 

Though Shaktikanta Das, the then economic affairs secretary and now RBI Governor, revealed that a new Rs 1,000 currency note would be issued “in due course”, in February 2017 he said the government had no plans to introduce it. This meant that the wide gap between the highest-value currency and the Rs 500 note never narrowed.

In the midst of all this chaos, the Rs 2,000 currency note gained temporary superhero status with rumours spreading about its Nano-GPS feature, a special technology that would allow it to be tracked by government. WhatsApp messages circulated that the embedded chip in the note would give precise location coordinates and enable easy tracking. Another message spread that the Rs 2,000 notes may have a radio frequency identification chip inside them so that they can be tracked and identified. 

A small section of the media also narrated tales about these features and stated that the chip has been ‘fitted in such a way that it can detect Rs 2,000 notes even from 120 metres below the ground’. By pointing out that the law enforcing agencies and Income Tax department could make use of this, the Rs 2,000 note was given an anti-corruption crusading role. The Reserve Bank of India (RBI), however, rubbished these rumours and said that such technology did not exist anywhere in the world. 

The Rs 2,000 note peaked early. About 89% of the notes were issued before March 2017, according to the RBI data. The total value of these banknotes in circulation touched a high of Rs 6.73 lakh crore on 31 March 2018, accounting for 37.3% of notes in circulation. Then the slide began and it fell to 31.2% of the total value of currency notes in circulation at end-March 2019.

This slumped to 22.6% at the end of March 2020, 17.3% at end-March 2021 and further to 13.8% at end-March 2022. As on 31 March 2023, it had a total value of Rs 3.62 lakh crore and constituted only 10.8% of notes in circulation.

The number of Rs 2,000 notes also declined over the years and the RBI stopped printing them in 2018-19. It fell from 3.3% of the total volume of notes at end-March 2018 to 3% at end-March 2019 and 2.4% a year later. This count further fell to 2% at the end of March 2021, 1.6% at end-March 2022 and a low of 1.3% as of 31 March 2023. 

All this while, Rs 2,000 notes were not in demand and even vendors were reluctant to accept them for small purchases. As they slipped out of our hands, many of us even forgot the existence of these notes. Then, in a surprise announcement on 19 May, the RBI made public its plan to withdraw these notes from circulation, and gave public time till 30 September to either deposit them in accounts or exchange them at banks. The regulator also directed banks to stop releasing Rs 2,000 notes into circulation.

“As the purpose of Rs 2,000 notes has been fulfilled, the decision has been taken to withdraw these notes…The economic impact of this will be very marginal as it represents only 10.8% of the currency in circulation and Rs 2,000 notes were not used much,” RBI Governor Das said.

Despite some similarities, the Rs 2,000 currency note will have a less turbulent exit than the demonetised Rs 500 and Rs 1,000 notes. Unlike the abrupt end of its two predecessors, the Rs 2,000 banknote will have a four-month farewell window. Das has also said that it will remain legal tender, although there is no clarity yet on what will happen after 30 September.       

There is no rush yet seen in bank branches to deposit or exchange the Rs 2,000 notes. Although a limit of Rs 20,000 at a time for exchange of Rs 2,000 notes has been fixed, no panic has set in. The rules have also not been made stiff and banks have not been mandated by the regulator to ask for identity proof and filling up of forms from those coming to exchange the notes, though many of them have set in these processes as a precautionary measure. 

The hoarders of Rs 2,000 notes have thus not been pinned down and outlets are available for them to get rid of the unwanted currency. They can dump these notes through non-banking routes by buying gold, luxury watches, premium branded goods and other items. 

Some observers have pointed out a common timing between demonetisation and the withdrawal of Rs 2,000 notes. Like demonetisation, the withdrawal of Rs 2,000 notes has come ahead of elections when cash usage sees a spike. Several states will go to the polls in the coming months while the national election is to be held early next year. But how this will play out is anybody’s guess. 

Hoarders of these notes may face inconvenience but the process is expected to be far less disruptive than the 2016 demonetisation move. Das has also assured that the RBI will be sensitive to the difficulties people may face during the withdrawal process of Rs 2,000 notes.

The high-value currency, launched with great fanfare, has lost its power over the years. But closer to death, there is a renewed empowerment, originally undesigned by its creators. Banks are hoping that Rs 2,000 notes will have a positive bearing on deposits, liquidity and interest rates, at least in the near term. Most of them expect almost the entire amount of Rs 3.6 lakh crore in the form of Rs 2,000 to return to the banking system. With banking liquidity increasing temporarily, the common belief is that the pressure on deposit rate hikes could ease.

As the RBI lets the curtain fall on the Rs 2,000 banknote, only a few will remember with fondness its fateful journey or mourn its funeral.