Former Finance Secretary: Withdrawal Of Rs 2,000 Notes Has No Impact On Economy Or Monetary Policy

Former Finance Secretary Subhash Chandra Garg asserts that the withdrawal of Rs 2,000 currency notes is inconsequential and will have no impact on the economy or monetary policy. He claimed that the higher denomination currency note of Rs 2,000 was rushed into service after demonetisation in 2016 for 'accidental reasons' in order to satisfy the temporary currency shortage.

With the tremendous rise of digital payments over the last five to six years, Garg believes that withdrawing Rs 2,000 currency notes, which are being replaced by other denominations, will have no effect on total cash in circulation and so will have no monetary policy effect.

"Neither will it affect the operation of India's economic and financial system. There is going to be zero impact on GDP growth or public welfare," he told PTI.

On Friday, the Reserve Bank of India announced the withdrawal of Rs 2,000 currency notes from circulation, but gave the people till September 30 to deposit such notes in bank accounts or swap them for cash.

It is reasonable to expect practically all of the Rs 2,000 currency notes in circulation to be returned to the RBI, and there will be no hardship or loss to anyone because these notes constitute a small portion of the money in circulation and are not frequently used for day-to-day transactions, he said.

Clarifying that the withdrawal of currency notes by the RBI is not demonetisation, he stated that the government, not the RBI, has the right to withdraw the legal tender status of currency notes.

Therefore, Rs 2,000 currency notes will continue to be ideal legal tender, he said, adding that the RBI's initiatives are mostly an attempt to persuade persons holding these notes to exchange them for other currency notes in circulation.

During the remonetisation period, Garg, who was Economic Affairs Secretary and in charge of the coin and currency division, said Rs 2,000 notes were issued not as a well-thought-out measure, but as something that was simply conveniently accessible to grasp on to.

He believes the government allowed the manufacture of Rs 2,000 currency notes a few months before demonetisation in order to introduce a higher value note.

The fate of the Rs 2,000 currency note was determined even before it was launched, he argued, and it had to be withdrawn as soon as possible.

Garg stated that the process of decreasing the circulation of Rs 2,000 notes in preparation for their ultimate phase-out began soon after demonetisation.

The total value of Rs 2,000 currency notes was approximately Rs 7 lakh crore when an in-principle decision was made in July-August 2017 not to print any more Rs 2,000 notes, he said, adding that a small quantity of such notes were printed in March-April 2018 to alleviate the mini currency notes shortage at the time.

According to an RBI press release, the printing of Rs 2,000 notes was halted entirely in 2018-19.

The government created substantially larger than ordinarily required Rs 500 currency notes in 2018-19 to permit withdrawal of Rs 2,000 notes, he said.

Steps to phase out Rs 2,000 notes have reduced the percentage of these notes in circulation to 10.8 percent in March 2023, down from approximately 75 percent in March 2017.