Rs 2,000 denomination note may lose legal tender status by year-end

No sign yet of Rs 1,000 note making a comeback

The central government may withdraw the legal tender status of the Rs 2,000 denomination banknotes by the end of December this year, after the Reserve Bank of India (RBI) decided to withdraw them from circulation by the end of September.
 

A source close to the development said since many Indian citizens and Indian missions abroad keep Indian currencies, a window has been kept open beyond September to avoid any inconvenience that was caused in 2016 when the legal tender status of then Rs 500 and Rs 1,000 notes was ended immediately, as part of the demonetisation exercise.
 

“Last time, during demonetisation in November 2016, a large amount of money was abroad with people, firms, and in our missions which could not come within the deadline and exemptions were given for such money. In several Latin American countries and Pacific island missions, such as Fiji and Trinidad, many Indians pay for visa fees in Indian rupees. All that requires time for us to settle. That’s why legal tender cancellation has not been done simultaneously, so that even if that money comes beyond the September deadline, it will be okay,” he said.
 

“With the withdrawal of the currency, the commitment of the RBI goes away but that of the government remains, since it is a legal tender. To avoid a repeat of the situation in 2016, the cancellation of legal tender status will now happen only after the September deadline. I don’t think it will go beyond December. That notification should come sometime after September and by year-end, the legal tender status will be withdrawn,” according to the source. When asked about the possibility of extending the September deadline for exchanging/depositing Rs 2,000 notes, he replied in negative.
 

“As you can imagine, there are specific purposes behind such exercises. Those are likely to be accomplished when we close it in time and not drag it. Before counterfeit notes, etc, start coming in, we would have to close the exercise.”

Asked if there’s any plan of reintroducing the Rs 1,000 note, the official answered in negative. “The Rs 500 currency should be India’s highest currency denomination, though those who are in the habit of hoarding will hoard Rs 500 notes, as well. We have to ultimately make India a less cash economy,” the source said.
 

The official said he doesn’t expect any trouble in exchanging the Rs 2,000 currency notes once the window opens on Tuesday. “It (the note) was in any case out of circulation for quite some time, and gradually the RBI had stepped up monitoring ATMs and circulation trends of this note,” he added.

 

Noteworthy

• No extension beyond Sept 30 for depositing/exchanging Rs 2,000 notes
• Notification withdrawing legal tender status likely after September
• Rs 500 banknotes likely to be the highest value currency in India
• Many Indian missions and citizens abroad have Rs 2,000 notes