High-value notes prone to be misused: Finance secretary

Clipped from: https://www.financialexpress.com/money/high-value-notes-prone-to-be-misused-finance-secretary/3097950/

Rs 2,000 notes were introduced for a temporary purpose, says finance secretary TV Somanathan

There is a long-term benefit of reducing illegal and illicit transactions which thrive on high-denomination notes.

The Rs 2,000 notes prevailed due to Covid, the Ukraine conflict and external crisis, but was meant to be withdrawn, as such high-value notes come in handy for illicit transactions, finance secretary TV Somanathan tells FE’s Prasanta Sahu. Edited excerpts.

Why are Rs 2,000 notes being recalled?

This is not something new or unusual. This has happened in the past also. This is a gradual replacement in line with the Clean Note Policy, but `2,000 continues as a legal tender. It can continue to be used in any quantity by anybody or tendered at the bank or exchanged for other denomination notes.

What is the rationale for the withdrawal at this point of time?

Rs 2,000 notes were introduced for a temporary purpose. It is not a desirable thing to have such a high denomination note. The withdrawal was not suitable earlier because of unusual economic circumstances created by Covid-19, the Ukraine conflict, the external crises, etc. So, since there is normalcy now, it is a good time to withdraw it.

Do you think bank deposits will rise?

One can tender `2,000 notes and get smaller denomination notes. So, it is difficult to say how much of such deposits will stay back in the banking system.

How will the economy be impacted by the recall of the notes?

There is a long-term benefit of reducing illegal and illicit transactions which thrive on high-denomination notes. All types of illegal transactions may not be tax-related but can be for drug financing, etc. These can be for a lot of non-tax-related improper activities. It’s a global phenomenon. High-denomination notes are prone to improper activity.

Will higher liquidity in the banking system reduce the cost of borrowing for the government and others?

Maybe, but that will be incidental. We don’t know at this juncture if that will happen or not.

Is there any plan to introduce Rs 1,000 notes?

No, not to my knowledge.