Demonetization of Rs2000 bills

 Is withdrawal of Rs 2000 currency notes in India, demonetisation or currency management? Does it address black money in any way? These questions are repeatedly re-appearing in the minds of Indian citizens. 

The Reserve Bank of India (RBI), the country’s Central Bank and the Central Government( Govt) prefer to call it as Currency Management but the media and some critics have labelled it as demonetisation. The effect of both is the same. Both result in withdrawal of a monetary unit from circulation but the cause for it may play as a differentiator. RBI claims that the withdrawal of Rs 2000 currency notes have been part of Clean Note policy that started way back in 2018-19 as it stopped printing these notes from then. Clean Note policy ideally necessitates withdrawal of old soiled notes and introduction of newly printed notes of the same monetary unit. While reintroduction of newly printed notes is not in the spelt out agenda, it is understood that the withdrawal of this currency denomination has been part of a planned process of RBI. 

It is true India, as a nation has transitioned largely to digital payment processes and the citizens do not carry currency notes as much as they would do pre-covid or even pre-demonetisation in 2016. It is also true that the Indian Rupee has been continuously devaluing and its purchasing power has been reducing. Citizens of the country who would want to carry INR 20000 for likely transaction(s) in cash (which could have settled at Rs 10000/- 5 years back)  will have to adjust to a thicker wallet containing 40 paper notes of INR 500/- each instead of 10 of INR 2000/- each. This leads us to another perspective of the decision. Cash from undisclosed sources will now entail a larger space to hoard, even temporarily, till they are stacked away to a Swiss account or converted to assets. This aspect  may be a deterrent for black money generation. 

The attempt to limit the exchange of Rs 2000 currency notes to Rs 20000/-, however may be a futile exercise to catch hold of undisclosed sources as people having excess of Rs 20000/- will have enough opportunities in the next few months till Sept 2023 to either buy assets in cash or expend for daily requirements or even exchange them with other people outside of the banking system. Whether it would result as a deterrent to hoard cash and thereby reduce the size of the parallel black economy can only be seen over time, to be believed.