7 Good and Bad Things about ₹2,000 Demonetisation
The Prime Minister has made an announcement. By discontinuing the 2000 rupee note, now there are two groups divided with different reactions. The first group is saying that It will help in fighting corruption and stopping fake currency. The second group, what benefit did it have when it was done earlier, and which fake currency has been eradicated? Why do people have to go through trouble again, and why have both groups emerged? In this situation, how can we get the right advice? So today, in this article, we will discuss in three simple points whether the demonetization of the 2000 rupee note is good or bad. How will it impact you? Without any bias or taking any side, let’s try to understand the demonetization of the 2000 rupee note properly. I won’t provide you knowledge, I will give you 10 logical points.
Point No. 1)
The biggest criticism is that it will cause inconvenience to people. Remember how the common people had to stand in long queues six years ago. They will have to stand in bank queues again, exchanging notes under the scorching sun, leaving their work aside, which will be troublesome for them. There is a significant difference between the previous demonetization and the current one. Last time, both the 500 and 1000 rupee notes were discontinued. Plus, when demonetization happened last time, those notes were immediately rendered useless for transactions from the same day. The only option you had was to go to the bank. Now, it’s different. The 500 rupee note is still in circulation, and let’s be honest, how many of those poor people who stood in line six years ago would have 2000 rupee notes? What journey would a poor person take with those notes? They might be useful in some special cases, but most poor people either don’t have 2000 rupee notes or, if they do, I can tell them how to manage expenses without going to the bank and standing in line.
Point No. 2)
A recorded criticism is that people will stop accepting the 2000 rupee note. The government has already stated that the note will be accepted until September 30th, as announced by Prime Minister Modi and the Reserve Bank of India. However, from today onwards, the circulation of the note will cease, and this is where the first point becomes valid. Even today, just like during the previous demonetization, our only option is to exchange the notes at the bank.
It’s not the case anymore; we can still exchange the notes. Look, most of the unorganized individuals, such as local grocery store owners or small Chemist Store Owners, will stop accepting the note from today onwards, and that’s where the problem arises. But where can you exchange those notes? Big stores like D-Mart won’t be able to refuse this note. If someone records a video clip and reports it to the Reserve Bank of India, penalties will be imposed on them. So, all the Huge Stores, McDonald’s, and cash-on-delivery services will all be able to take this note, which was not possible last time.
Therefore, I don’t think there will be as much panic as before.
Point No. 3)
How is this demonetization different from the one in 2016–17? Well, we need to consider one thing: during the previous demonetization, both the 500 and 1000 rupee notes were demonetized. However, for the past five years, the Reserve Bank of India hasn’t been printing new 2000 rupee notes.
As a result, people already have a scarcity of 2000 rupee notes. Only ten percent of the currency value is in the denomination of 2000 rupees. Therefore, there is no need to panic excessively. Just imagine, if today the 500 rupee notes were also demonetized and rendered useless, you wouldn’t be able to use them anywhere. They would have to be deposited at the banks, which would lead to long queues and crowds for depositing them. Moreover, almost everyone possesses 500 rupee notes. As for the 2000 rupee notes, as I mentioned earlier, you can use them for cash-on-delivery payments and at organized retail stores, and government offices for services like railway ticket bookings and electricity bill payments. Hence, this demonetization is different from the previous one.
Point no. 4)
If the justification of the government and the Reserve Bank of India (RBI) is that demonetization did not occur because there were already very few notes, then let’s consider this from a critical perspective. If you had simply stopped printing the notes and waited for a few more years, those old notes would have naturally become invalid and damaged, as people would have exchanged them in banks. The inconvenience faced by a few people due to this step could have been avoided.
As more and more people are coming into the banking system, notes are naturally being deposited in banks. You could have given the directive to banks that whenever a deposit includes a ₹2000 note, they should send it to the RBI, and in return, the RBI would provide them with four ₹500 notes. This could have been done gradually over time. But there might be something that I am missing.
However, I still feel that in another two to three years, these notes would have naturally become obsolete. Should India have ₹2000 or ₹1000 notes? Let’s try to understand this logically, comparing it with the US. In the US, the average person’s annual income is around ₹50 lakhs. In India, it is around ₹2.5 lakhs, which means our annual income is around 30 times less than the US average income.
Now, let’s consider purchasing power parity later. 30 times less. On average, even an average citizen there earns more than us, so naturally, they should have higher denomination notes. Their largest denomination note is ₹8000, while ours is only ₹2000, which is four times smaller. This difference is significant. According to me, considering our income, we should not have ₹2000 notes. Why give ₹2000 notes to a common person whose annual income is around ₹2.5 lakhs? Similarly, I think even ₹500 notes should be lower in India when we talk about transitioning to a digital economy.
If we want to become a digital-first nation, then let’s remove the high denomination notes that people stash in their homes, and basements, and engage in illegal activities with. Make it difficult for everyone. So, I have always been disappointed when after demonetization, ₹500 and ₹1000 notes were banned, and ₹500 and ₹2000 notes were introduced.
Apart from that, the immediate circulation of counterfeit currency is another concern that I do not understand logically. Am I happy with the demonetization of ₹2000 notes? I am happy. I believe it should have been more gradual. It could have been done again in a slower manner, but I will be satisfied in the true sense when even the ₹500 note is removed. That’s when the need for a digital economy arises, right?
5) Does repeatedly demonetizing the currency diminish India’s credibility in the eyes of the world?
My answer to this is that it depends on the narrative being set. It is widely known that the respect for a currency decreases when its dependability diminishes, such as when a country starts facing financial difficulties and it is uncertain whether it will be able to repay its debts. This has happened to several countries, but India is not in a financial crisis. Therefore, from an economic perspective, the respect should not be diminished. However, the perception is always influenced by the narrative. The world doesn’t always view things through the lens of practical mathematics or economics. If the narrative is set that the government is indecisive, starting a note and then discontinuing it within a few years, it can damage the image. This government is the only one that has discontinued previously issued notes within a short span of time. So, if the narrative is set that they are unable to make decisions or stick to them, it could cause some damage to the image.
6) Will this benefit the market, companies, or sectors?
Look, in the long term, nothing significant is likely to happen. Most things don’t make much difference in the long run. We have seen big events come and go. What could happen in the short term is uncertain.
Bank deposits may increase. We don’t know how many deposits of ₹2000 notes will come. If deposits of ₹2000 notes increase, it could boost their cash reserves a little. It’s possible that when people see the money they had at home in the bank, they might consider investing a small portion of it in mutual funds or think about how to spend that money. If there are ₹2000 notes at home, they might buy a washing machine or something that they had been thinking from a long time. If the objective is to withdraw this note, it could lead to some increase in expenditure.
There may be some goods or services that have been affected by black money or something that I couldn’t show before. I might be able to show a small portion of it now. If I can’t deposit it in the bank, then it could lead to some increase. It could make a difference in consumption. In small amounts, banks might receive some money in mutual funds. These are three sectors that could potentially benefit slightly.
7) Should you be worried if you have ₹2000 notes?
Now, let’s see, the simple answer is if you have a few notes, earned through hard work and honesty, you should take them to the bank. If the bank refuses to accept them, then spend them as I mentioned earlier. On the other hand, if you have a lot of unaccounted ₹2000 notes, then, well, you deserve it. Then, you should worry. Then, you should think about how you’ll deposit lakhs of rupees since there’s a daily limit of ₹20,000. You’ll have to find ways, use connections, and deposit it in someone else’s name. I know you’re very smart and you’ll figure something out. But the stress you’re experiencing, well, you deserve this stress.
Conclusion
Am I happy or not happy? Should it have happened or not? I think this is just a small first step. I’m not happy yet. And I’ll be happy when, as I said at the beginning, the ₹500 note is also removed. Then I’ll believe that yes, this government is serious about eliminating corruption and large cash transactions. Removing the ₹2000 note is a significant move since the ₹500 note was also a major denomination that facilitated black money transactions. It will only bring about a slight difference for now. It won’t have a significant impact on corruption. The ₹500 note will be discontinued. So, I openly say that it’s a very good step, and I’m happy that this has happened. Until then, there won’t be any major changes. It’s not a significant event, according to me.
