The RBI has devalued the Rs2,000 currency note. The Rs2,000 note was introduced after demonitisation in 2016 and it created a lot of confusion and a hardship for common people. It is now clear that the Rs2,000 note will not be legal tender after September 30, 2023.
By Rajan Narayan
FROM Tuesday, May 23 onwards Rs2,000 currency note has virtually been devalued. The existing Rs2,000 currency note, which was introduced after demonetisation, has now been declared invalid and has to be exchanged with your bank for a new batch of Rs2,000 currency notes. It is not known whether the invalidation of the existing Rs2,000 currency notes is an act of revenge against the voters of Karnataka. Or a warning to the rest of the voters in India not to imitate the example of their counterparts in Karnataka in the 2024 parliamentary elections.
In the run-up to the demand for exchanging existing Rs2,000 notes with existing fresh notes there has been panic. Since the announcement on Friday and over the weekend the bold and beautiful and rich and powerful have been rushing to high end jewellery shops who are the only ones excepting the existing Rs2,000 notes. The only other outlet for Rs2,000 notes seem to be petrol pumps. Traders and malls have stopped accepting Rs2,000 currency notes. Even investors and money exchange dealers are very reluctant to accept the existing Rs2,000 notes. Though the Reserve Bank of India has not said so the presumption is that a large number of the existing Rs2,000 are as black money. A significant amount may be as bribes received by voters in the recent Karnataka elections. The BJP spent hundreds of crore in the elections. Narendra Modi is very bitter about the BJP losing the elections. Despite a 26-hour long campaign the people of Karnataka swept away the BJP which could not even get a simple majority. It may be recalled that the Congress got 135 seats which was more than a majority on its own.
The elections to Karnataka were the last state election before the parliamentary polls. So much so Amit Shah does not need huge bundles of Rs2,000 currency notes to bribe existing MLAs from other parties as in the case of Goa where eight Congress MLAs including Prastapsingh Rane and Digambar Kamat. It is rumoured that several hundred crore were paid to the MLAs to defect to the Congress. The Rs2,000 currency notes were ideal for bribes as a large volume of currency could be packed into a small bag.
Right from the beginning of the introduction of the Rs2,000 notes there has been a reluctance by the aam aadmi to accept them. This is probably because it was difficult to get change for the Rs2,000 notes. It was introduced to replace the Rs1,000 note which was devalued. This led to a big pressure on the Rs500 note which was also devalued and had to be replaced with new similar currency from the bank.
RBI’S Governor Shakti Kanta Das who is very close to Narendra Modi has assured that the present Rs2,000 will remain legal currency. That it can be exchanged in any bank before September 30, 2023. However, it is not very clear if those who go to the bank to exchange Rs2,000 notes they will be asked to disclose their identity. The banks are not expected to ask any questions if the Rs2,000 notes holder wants to exchange it. This is unlike the case of other cash transactions where records of the depositor and the withdrawer are maintained.
The decision to invalidate the current Rs2,000 notes affects not only hoarders of black money but also the ordinary man on the street. It is because banks have been giving Rs2,000 notes against salary accounts and other routine transactions. The confidence of the RBI governor that there will be no disruption is because a lot of people have switched to electronic transfer of currency. But we are still a cash economy with the banking system accounting for only 20 per cent of the volume of cash with the public. So much so a large number of small traders find it more convenient to keep their reserves in Rs2,000 notes than to deposit them in a bank. This might invite the charge of hoarding black money.
The RBI governor has not ruled out the possibility of extending the date for exchange of the present Rs2,000 notes. The sensible response would be to spend the notes in outlets which still accept them. They can be used to making payments to the government for house tax and other purposes. But the fear is that if any organisation accepts Rs2,000 notes they may not be able to exchange them at the banks even before September 30. This is because although the RBI chief says no proof is needed the banks may be reluctant to accept them. This is because of the risk that in the rush to exchange currency counterfeit notes may be acquired by the banks. It is probably that the huge bribes paid were in counterfeit currency.
BANKS WITH ATTITUDE!
MORE than retailers it is the banks themselves which are reluctant to exchange Rs2,000 notes without proof of the person’s identity. When demonetisation happened the banks found themselves with huge quantities of black money. Cooperative banks were used and misused. The Rs2,000 note was primarily seen as a vehicle for illegal transactions. Indeed, the banks themselves did not consider giving the ordinary consumer Rs2,000 notes with them.
During demonetisation the RBI was unprepared as the additional fresh currency had not been printed before the Rs1,000 was declared invalid. This time around the RBI chief assures that there is sufficient stock of the new Rs2,000 notes. In theory there is time till Sept 30 to exchange the notes. But inevitably the customer goes into a panic with the fear that the government might close the window for exchange much earlier. There is even the fear that the Rs2,000 note will be declared invalid.