New Delhi: The RBI's decision to withdraw Rs 2,000 currency notes from circulation will not have any 'perceptible effect' on the economy as any such notes returned will be replaced by either equivalent cash in lower denomination notes or a deposit, former NITI Aayog Vice Chairman Arvind Panagariya has said. Panagariya further said that the likely motive behind this move is to make the movement of illicit money more difficult.

Any currency in Rs 2,000 notes will be replaced by either equivalent cash in lower denomination notes or deposit

"We will not see any perceptible effect on the economy. Any currency in Rs 2,000 notes returned will be replaced by either equivalent cash in lower denomination notes or a deposit. So, money supply will not be impacted," he said.

Panagariya noted that Rs 2,000 currency notes represent only 10.8 percent of the cash currently in the hands of the public and probably most of it is being used for illicit transactions.

RBI announces withdrawal of Rs 2,000 currency notes from circulation

The Reserve Bank of India on Friday announced the withdrawal of Rs 2,000 currency notes from circulation, and existing notes in circulation can either be deposited in bank accounts or exchanged by September 30. The bank notes in Rs 2,000 denomination will continue to be a legal tender, the RBI said in a statement.

Many citizens have no Rs 2,000 notes since few transactions take place in those notes

Asked whether the public will face inconvenience due to this move, the eminent economist said that many citizens probably have no Rs 2,000 notes since few transactions take place in those notes. "For those who do, inconvenience will not be beyond an extra trip to the bank. Even that can be avoided by exchanging Rs 2,000 notes when visiting the bank for some other transaction," he said.

Explaining further, he pointed out that per capita income in the US in 2021 was USD 70,000 and its highest denomination note is USD 100. This gives ratio of per capita income to the highest denomination note at 700. In India, per capita income in 2021 was approximately Rs 1,70,000.

'Rs 500 note as highest denomination note would seem to be right for us'

"For the same ratio of per capita income to the highest denomination note as in the US, our highest denomination note would have to be Rs 243. So, Rs 500 note as the highest denomination note would seem to be right for us, given that we are still more of a cash economy than the US," he said.

RBI started printing Rs 2,000 notes in Nov 2016

The RBI started printing Rs 2,000 notes in November 2016 after Prime Minister Narendra Modi scrapped high-value Rs 1,000 and Rs 500 notes overnight. He opined that one lesson of November 2016 demonetisation was that tracing black money is incredibly difficult. "The most you can do is to make future illicit transactions more difficult by eliminating high denomination notes," he said.

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