Rs 2,000 note controversy: What is forcing RBI to stop printing fresh notes?

Going by the Reserve Bank of India (RBI)'s annual report for 2018-19 and a recent RTI query, the printing of new Rs 2,000 notes has halted altogether in the last 18 months. While the RBI has not specified any reason or clarified if indeed the printing has been stopped indefinitely, the market is attributing it to hoarding of high value notes or the optimal size of Rs 2,000 notes in the system.

There could be many reasons for not printing the high value Rs 2,000 notes. For example, after the demonetisation, Rs 2,000 notes were remonetised before new Rs 500 notes. Right after the demonetisation, the RBI pumped in Rs 2,000 notes in large quantity as there was a shortage of cash. This is evident from the data of bank notes issued by the RBI. In terms of value, the Rs 500 notes comprised only 22.5 per cent in 2016/17, that is, after  five months of demonetisation.  This increased to 42 per cent in 2017/18 and 51 per cent in 2018/19. Similarly, the share of Rs 500 notes in the total currency notes in circulation (volume) moved up from 5.09 per cent in 2016/17 to 19.8 per cent in 2018/19.

Besides, it seems the optimal level of Rs 2,000 notes (31.2 per cent in the value term and 3 per cent in volumes) has been reached. The next expansion could be of lower denominations of Rs 500, Rs 200 or new Rs 1,000 notes. The high value Rs 2000 notes are not coming back into the system either, say bankers. There is a high possibility of people hoarding these notes against Rs 500 or Rs 200 notes. This is visible in the cash dispensed by the ATMs. The ATMs are largely dispensing Rs 500, Rs 200 and Rs 100 notes.

The annual report says that the share of Rs 2,000 notes in the total bank notes in circulation has plunged to 3 per cent in 2018/19 against 3.3 per cent in 2016/17, that is, immediately after the demonetisation of old currency notes of Rs 1,000 and Rs 500.  The RTI query reveals that not a single Rs 2,000 note has been printed in 2019/20 so far.

According to the RBI report, the share of Rs 2,000 notes in value term was 50.2 per cent in 2016/17, which later fell to 31.2 per cent  in 2018/19.  The value of all Rs 2,000 notes issued in 2016/17 stood at Rs 6,57,100 crore; only Rs 15,500 crore worth fresh Rs 2,000 notes were added in 2017/18, taking the total to Rs 6,72,600 crore.

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