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Banking Central | Black money menace, rampant fake currency behind Rs 2,000 note recall

The biggest headline in the news space towards the end of last week was that the Reserve Bank of India would start withdrawing Rs 2,000 currency notes from May 23. People will have time till September 30 either to exchange or deposit these bills at bank branches or select RBI offices, though they will continue to be a legal tender.

The Rs 2,000-denomination notes were introduced to remonetise the system after the government banned the Rs 500 and Rs 1,000 notes in November 2016 to check a surge in fake currencies.

But, why did the RBI choose to withdraw these bills? There could be a few possible reasons. First, it makes sense to terminate the denomination that isn't in use much compared to other denominations. The total value of these banknotes has declined from Rs 6.73 lakh crore at its peak on March 31, 2018, with 37.3 percent of notes in circulation, to Rs 3.62 lakh crore, constituting only 10.8 percent of notes in circulation on March 31, 2023, shows RBI data. As a percentage of total currency in circulation, these notes have bene declining over the years. Hence, it was only logical to withdraw these notes sooner than later.

Second, the Rs 2,000 notes created a headache for the government and tax authorities as illegal elements used these bills widely. Going by the data from the income tax department, these notes have constituted a major chunk of the black money seized in recent years.