India to Withdraw 2K-Rupee Notes from Circulation

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Facts

  • The Reserve Bank of India (RBI) said Friday that the nation will begin withdrawing its 2K-rupee ($24.5) banknote, with the head of the finance ministry, T.V Somanathan, saying it would not cause disruption "either in normal life or in the economy."1
  • The RBI has asked people to deposit their 2K-rupee notes into their accounts or exchange them into banknotes of other denominations — up to 20k rupees at a time — starting May 23, with banks asked to provide exchanges until Sept. 30.2
  • This comes ahead of elections for the country's largest states at the end of the year and national elections in 2024, with most of India's political parties suspected of hoarding cash in high denomination bills to fund election campaigns to get around spending limits imposed by the Election Commission.3
  • At their peak in 2018, the 2K-rupee notes constituted 37.3% of notes in circulation, but now only make up 10.8%, with the RBI stating "the stock of...other denominations continues to be adequate to meet the currency requirement of the public."2
  • Though the banknotes — introduced in 2016 after Narendra Modi's government withdrew 500 and 1K-rupee denominations to remove forgeries from circulation — will remain legal tender beyond the withdrawal date.1

Sources: 1Reuters, 2The Times of India, and 3The Straits Times.

Narratives

  • Left narrative, as provided by The News Minute. After ignorantly issuing the 2K-rupee banknote in the first place and watching it destroy the Indian economy for years, PM Modi's government is finally admitting its failure. The ruling government acts before it thinks, and this is another example of its failed policies and disregard for the working people.
  • Right narrative, as provided by Reuters. As India's deposit growth is currently lagging behind credit growth, this move will help ease the pressure on deposit rate hikes. Though some small businesses like construction or agriculture could be hurt in the near term, the 2K-rupee note was little used compared to smaller denominations. This is the right decision.