Why Rs. 2,000 note withdrawal is important, IMF expert explains
Dr. Krishnamurthy Subramanian, the executive director for India at the International Monetary Fund (IMF), has hailed the decision of the Reserve Bank of India (RBI) to scrap the circulation of Rs. 2,000 currency notes. In a tweet on Saturday, Subramanian, who was India's chief economic adviser (CEA) from 2018 to 2021, explained why the move is essential for the country. Here's what he said.
Rs. 2,000 notes primarily used for illegally storing money: Subramanian
According to Subramanian, Rs. 2,000 notes are often uncovered during raids as the currency is primarily used for hoarding money. He added that an 80-20 rule suggests that even if 80% of people are legally storing the currency, they might be storing only 20% of the overall value. The 20% might be hoarders who may account for 80% of the value, Subramanian said.
Digital payments reduced use of Rs. 2,000 notes
Subramanian further stated five other reasons why common people would not face difficulties with the RBI's move. First and foremost, Rs. 2,000 notes are not used widely and only account for 10.8% of currency circulation, he said. Secondly, with the rise of digital payments, the role of physical currency notes, especially Rs. 2,000 notes, has declined significantly, he added.
Digital transactions to multiply 3x in 2026: Report
Subramanian's third reason was that Rs. 500 notes, along with digital payments, can be used as a medium of exchange for seamlessly substituting the outgoing currency notes. The economist further cited a Bernard Gerald Cantor (BGC) report and said digital transactions are expected to multiply three times from now to 2026, which will minimize the need for Rs. 2,000 notes.
People encouraged to exchange Rs. 2,000 notes until September 30
Subramanian's last reason was the RBI said the Rs. 2,000 notes would continue to be legal tender so that genuine people could exchange them even beyond the September 30 deadline. The RBI on Friday instructed banks to cease issuing Rs. 2,000 denomination banknotes with immediate effect. Moreover, it encouraged the public to deposit or exchange notes from May 23 to September 30, 2023.
