The Reserve Bank of India, announced the withdrawal of 2000 rupees from circulation on friday with immediate effect. The citiziens were advised to exchange these banknotes until September 30. Due to the digitalisation of the payment systems in India, market analysts believe the decision will not make a prominent effect as the circulation has already been decreased since 2016. So why te RBI took this decision?
1 – The most obvious reason is that the Rs 2000 banknotes are not commonly used by citizens in payments or daily use. When the Rs 2000 banknotes were issued first in November 2016, the Rs 500 and Rs 1000 banknotes were withdrawn by that time. These banknotes in other denominations are now available thus the need for Rs 2000 has decreased. This decision is expected to improve the availibility of lower denomination banknotes.
2 – Approximately 90% of the banknotes were issued prior to March 2017 and getting close to the end of their lifespan of 4-5 years. Due to the “Clean Note Policy”, RBI had also announced to phase out all banknotes issued prior 2005 in 2014 earlier too.
3 – Black Money being a huge social and economic issue in India, this move is expected to reduce the amount of black money hoarders as a lot of people have been using these banknoted as a store of value. Hence experts think that this decision will be a positive development for the Indian markets.
4 – Senior Vice President of Financial Sector Ratings says that the deposit accretion of banks could improve marginally in the third term of 2023. Mr Karthik also expects the pressure on the deposit rates hikes to ease which could result in moderation of short-term interest rates.
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