Reserve Bank Governor Shaktikanta Das on Monday said the impact of withdrawal of ₹2,000 currency notes will be “very very marginal” on the economy because it accounts for only 10.8% of currency in circulation.
Describing the withdrawal exercise as part of currency management operations of the Reserve Bank, he said, he expects most of the withdrawn ₹2,000 notes to be returned to the exchequer by the deadline of September 30.
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As you know that Rs 2,000 notes were not commonly used in any transaction … We have found that it is hardly being used for carrying out transactions. Therefore, economic activity will not be impacted.” As part of a clean note policy, he said, RBI has been conducting such exercise of withdrawal of currency notes from time to time and such exercise was undertaken in 2013-14, whereby the notes which were printed prior to 2005, were withdrawn from public circulation.
So, he said, withdrawal of ₹2,000 notes is part of clean note policy and they continue to be a legal tender.
Asked if ₹2,000 notes will continue to be a legal tender, Mr. Das said “It will continue as legal tender. We will wait how many notes are coming. I cannot give a speculative answer about what will happen post September 30.” Most of the notes are expected to come back, he said, adding “that is our expectation at this stage. We will see how many notes come back. And as we approach September 30, we will decide at that stage.”
He said there is enough time available for exchange and deposit in bank accounts so people should not panic.
There is more than adequate quantity of printed notes available in the system not just with the RBI, but also at the currency chests which are operated by the banks, he said.
“So there is adequate stock available and there is no reason to worry whatsoever. We have more than sufficient stocks,” he said.
The Governor also said that the RBI is sensitive to the difficulties which may be faced by people who are on long foreign visits or living abroad on work visas.
“It will be our endeavour to address the difficulties of the people and to complete the entire process in a smooth manner,” he said.
To a question regarding black money coming back to the system, he said, there is a set procedure for deposits in your account or cash exchange.
“What we have said is that the existing requirements or the existing procedures have to be followed by the banks. We have not come out with an additional procedure. You must be aware that there’s an income tax rule if you deposit cash above Rs 50,000 then you have to produce your PAN. So existing rules will apply,” he said.
On whether it will impact India’s currency management system, Mr. Das said, it is very robust and India’s exchange rate is among the least volatile among peer countries vis-a-vis the dollar.
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Indian currency has remained stable, despite the crises in the international financial markets due to the war in Ukraine, the failure of certain banks in advanced economies.
“Indian currency management is very robust and I just pointed out that the security features of this new Mahatma Gandhi series notes have not been breached. So, the integrity of our currencies continues,” he said.
Stressing that the security features of new series of ₹500 and ₹2,000 notes have been robust and there has not been any breach, he said, whatever fake currency is there in the market, it is sophisticated photocopy.
With regard to impact on liquidity management, Mr. Das said it will depend on the demand of the people.
“Some of it will get deposited into bank accounts. Some of it will be exchanged. So, what is exchanged across the counter goes back immediately and what is deposited in the bank accounts would depend on the needs of customers,” he said.
So far as liquidity in the system is concerned, he said, the RBI monitors the liquidity in the system on a day to day basis.
“Last week we undertook a variable rate repo auction of Rs 50,000 crore. It was a variable rate repo auction. We got bids for Rs 46,400 crore and that was given to the banking system,” he said.
Asked about the rationale behind exchange of 10 pieces of ₹2,000 notes, Mr. Das said similar numbers were allowed in January 2014 also.
Asked about ₹1,000 reintroduction, he said, it is a speculative question and there is no such proposal at the moment.
