Demonetisation 2.0? The 2000-rupee note saga explained and analysed.
If you remember November 2016, you’ll also remember the horrid memories associated with standing in long queues outside banks to withdraw cash - all thanks to demonetisation.
And RBI threw another bomb last week - saying 2000-rupee notes will be taken out of circulation.
But let’s see what this means and whether it’ll impact us or not.
First
1. This isn’t demonetisation. The notes are simply being taken out of circulation
2. The reason this is being done is that 2000-rupee notes were primarily printed because 500 and 1000 rupee notes were demonetised in 2016. Now with the new 500 rupee notes, their purpose is seved
3. RBI stopped printing 2000-rupee notes in 2018 anyway. Plus they have a “Clean note policy” which is another reason to stop circulation
4. The notes are still legally valid. You can still use them everywhere
Now, if you don’t want to use them, you can get it exchanged from banks or deposit them in your bank account.
The max amount allowed for exchange is Rs. 20,000 per exchange.
So how does this affect our economy?
1. Well, we’ll see more money flowing into assets like gold and real estate (heavily driven by cash payments) while people try to use up their 2000-rupee notes, so some short term price increase is possible for these assets
2. Banks may get more money in terms of deposits, which means more liquidity for them. So if the quantum is high enough, loans “may” get cheaper
3. Retail sales may shoot up temporarily as people try to use their 2000-rupee notes while they can
But this is in no way going to be anywhere near what we saw in 2016.
A major reason is because back then, 86% of the currency in circulation was demonetised.
But now, 2000-rupee notes in circulation form only 10.6% of the total currency in circulation
So you can relax. It isn’t going to be bad.
I’ve written a much more detailed analysis of this in my newsletter. Do check it out. Link in comments.
