Preeti Motiani
Editor, The Economic Times
Synopsis
The Reserve Bank of India (RBI) has decided to withdraw Rs 2000 bank note from circulation. The announcement came on May 19, 2023. The central bank has said that the general public are encouraged to deposit or exchange the Rs 2000 bank note by September 30, 2023. Do note that there is no change in the legal status of Rs 2000 note.
The Reserve Bank of India (RBI) has decided to withdraw Rs 2000 from circulation. As per the notification issued by the RBI, the note is being taken out of circulation in pursuance of the clean note policy. The central bank has asked people to exchange or deposit the Rs 2,000 note in banks by September 30, 2023. The RBI has stressed the fact that Rs 2000 note continues to be a legal tender. This means that one can use the Rs 2000 note for buying goods and services, in everyday life transactions etc. However, nothing is mentioned in the latest circular regarding what will happen if Rs 2000 note is not exchanged or deposited in banks by the September 30 deadline.
The RBI in its directive to all the banks has said that the instructions for the modalities of exchange and deposit of Rs 2000 note are effective till September 30, 2023. Thus, one needs to await further instructions from RBI regarding what will happen to these notes from October 1, 2023.
Going by similar exercises done earlier by the RBI, these notes may or may not remain legal tender after September 30, 2023. Here are two instances of what happened in earlier times when RBI withdrew currency – notes and coins- from circulation.
Case I: In 2013-14, the RBI decided to withdraw some banknotes issued prior to 2005 from circulation. This was done because such notes had fewer security features and new ones with better security features were available.
The FAQs issued by the RBI on Indian Currency (updated till May 17, 2022), state that the facility for exchange of pre-2005 notes is available in specified offices of RBI. However, this does not imply that banks cannot accept deposits of pre-2005 banknotes for crediting the money to the customer’s account. This has been reiterated by the RBI in a press release dated December 19, 2016.
Hence, going by RBI’s above-mentioned FAQs, if an individual has an old pre-2005 bank note for a denomination of say Rs 10, 50, or 100, then such notes can either be deposited in their bank accounts or exchanged at the specified RBI offices. However, do note that old Rs 500 and Rs 1000 notes can neither be exchanged nor deposited in the bank account. This is because these notes were demonetised and ceased to be legal tender from midnight of November 8, 2016.
Case II: The central bank has done a similar exercise in the case of 25 paise coins. The same FAQs as mentioned above state: “Twenty five paise coins were withdrawn from circulation with effect from June 30, 2011, and are, therefore, no more legal tender. Coins of denominations below 25 paise were withdrawn from circulation much earlier. All other denominations of coins of various size, theme and design minted by Government of India under The Coinage Act, 2011 and issued by RBI for circulation from time to time, continue to remain legal tender.”
As per the FAQs, every banknote issued by Reserve Bank of India (Rs 2, Rs 5, Rs 10, Rs 20, Rs 50, Rs 100, Rs 200, Rs 500 and Rs 2000), unless withdrawn from circulation, shall be legal tender at any place in India in payment or on account for the amount expressed therein, and shall be guaranteed by the Central Government, subject to provisions of sub-section (2) Section 26 of RBI Act, 1934.
The press note issued by the RBI on May 19, 2023, says that though Rs 2000 note is being withdrawn from circulation, it continues to be a legal tender. “Members of the public can continue to use Rs 2000 banknotes for their transactions and also receive them in payment. However, they are encouraged to deposit and/or exchange these banknotes on or before September 30, 2023,” state the FAQs issued for the deposit/exchange of Rs 2000 notes.
The language used by RBI ‘encouraged to’ does not make it clear what will happen after September 30. In the two instances cited above, as per RBI’s own FAQs while 25 paise coin is no longer legal tender, the pre-2005 banknotes continue to be so.
Hence, it would be wise to follow the RBI’s guidelines and exchange/deposit Rs 2000 notes in banks by September 30 as RBI has not yet clarified what will happen after that. Clarification from RBI on whether an individual can continue to hold Rs 2000 note as legal tender after September 30 is still awaited.
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