₹2,000 currency notes ‘legal’, ‘less legal’, ‘dubious’ or plain illegal?

The State Bank of India on Saturday 'modified' the instructions it issued on Friday regarding the exchange of ₹2,000 notes at banks. Depositors no longer have to fill up requisition slips and offer an identity proof to exchange the high-value notes now withdrawn by the Reserve Bank of India.

The Form III circulated by the bank on Friday had caused a public furore, with people questioning why they would have to fill up a separate requisition slip and also produce an identity proof to deposit their own money in their own bank accounts.

As the 'deliberate misinformation'—so termed by one media report— spread, there was widespread outrage. Depositors wondered why they needed to fill up a form to change one legal tender for another, and a higher value note for a smaller denomination.

There is also confusion over why the holders are being asked to 'exchange' the ₹2,000 notes. If the currency notes continue to be legal tender till September, refusal to accept these notes should be a criminal offence. Why, then, has the RBI issued such a confusing and contradictory guideline by notifying other currency notes in other colours and denominations to be a little more 'legal' than the ₹2,000 notes?

One exasperated senior citizen exclaimed, "This is ridiculous. Haven’t seen ₹2,000 notes for a long time till two weeks ago they popped up at my ATM. Now I am required to return to the bank and 'exchange' the valid notes for notes of [a] lesser denomination. But, pray why?"

Critics believe that as in the case of demonetisation in November 2016, this notification to withdraw ₹2,000 currency notes has also been done under duress and on the advice of what Dr Parakala Prabhakar has described as "voodoo economists".

The Reserve Bank of India’s announcement on Friday withdrawing ₹2,000 currency note from circulation but allowing it to remain as legal tender till September caused much confusion and, experts said, made little sense.

Economist Arun Kumar expressed his doubts over the explanations offered by the RBI. The central bank had justified the withdrawal on the ground that the currency note's life was over after six years and that it was not used for transactions but for hoarding. The economist, writing in The Wire, contested the claim that the high denomination note is only used by hoarders. Every company which has to deal with large cash payments, farmers who buy most of their inputs in cash, the informal economy and even the middle-class people who keep cash for emergencies prefer to keep high-value notes, he pointed out.

Others have also questioned the timing of the announcement and wondered why the announcement came five days after the Karnataka election result and why the RBI fixed the end of September as the end-of-life for the ₹2,000 notes as legal tender—and not, for example, December.

Critics have also expressed doubts that if the announcement was not designed to divert attention from Karnataka, then the announcement may have a political motive linked to the state elections due after September. Just as the November 2016 demonetisation was aimed at starving other political parties before the UP election in 2017, the withdrawal of ₹2,000 notes may have something to do with the state elections, they argue.

By the RBI's own admission, the high-value currency note was not being used in ordinary transactions and constituted just 10 per cent of the currency in circulation in April 2023. The government had earlier told Parliament that the RBI had stopped printing ₹2,000 currency notes in 2018.

For the past few years, ATMs have also stopped dispensing the pink ₹2,000 notes. But in recent days, anecdotal evidence suggests that the pink notes had staged a return and were again being dispensed at the ATMs. This has raised the question whether some people were privy to the virtual demonetisation of the currency note and, thus tipped off, had deposited the notes into banks early on.