The Reserve Bank of India (RBI) decision to withdraw the ₹2000 notes from circulation represents a significant move in the country's financial landscape. This move, announced via RBI Notification DCM(Plg) No.S-236/10.27.00/2023-24 dated May 19, 2023, surprised many but was a calculated decision based on several factors.

The ₹2000 denomination banknote was first introduced in November 2016 under Section 24(1) of the RBI Act, 1934. The primary reason behind this introduction was to meet the immediate currency requirement of the economy after the withdrawal of the legal tender status of all ₹500 and ₹1000 banknotes in circulation at that time. The move in 2016 was significant, and the introduction of the ₹2000 note was seen as a necessary step to ensure financial stability and ease the transition for the Indian public.

The printing of ₹2000 banknotes was stopped in 2018-19. This decision came after the RBI determined that the objective of introducing the ₹2000 denomination had been fulfilled and that banknotes of other denominations were available in adequate quantities to meet the country's economic needs.

One of the key reasons behind the withdrawal of the ₹2000 banknotes from circulation was in pursuance of the "Clean Note Policy" of the Reserve Bank of India. This policy is aimed at ensuring the availability of good quality banknotes to the members of the public. It is an initiative by the RBI to maintain the integrity and cleanliness of the banknotes in circulation, which helps maintain public confidence in the nation's currency.

Notably, the ₹2000 banknotes will continue as Legal Tender, meaning people can deposit these banknotes into their bank accounts and exchange them for banknotes of other denominations at any bank branch. This is unlike the 2016 demonetization, where the ₹500 and ₹1000 denomination notes were demonetized and could no longer be used as legal tender.

In order to ensure operational convenience and manage the withdrawal process smoothly, the RBI has put a limit on the amount of ₹2000 banknotes that can be exchanged at a time. Starting from May 23, 2023, individuals can exchange up to ₹20,000 at a time. Furthermore, the RBI has set a deadline for exchanging these notes: September 30, 2023.

The decision to withdraw the ₹2000 notes has raised several questions among the public. In response, the RBI released a set of Frequently Asked Questions (FAQs) to clarify several concerns. It was explained that public members could continue to use ₹2000 banknotes for their transactions and receive them in payment. However, they are encouraged to deposit and/or exchange these banknotes before the deadline.

The deposit of ₹2000 banknotes into bank accounts can be made without restrictions, subject to compliance with extant Know Your Customer (KYC) norms and other applicable statutory/regulatory requirements. This means that the ₹2000 banknotes can be deposited freely into bank accounts as long as it complies with existing laws and regulations.

The RBI also clarified that a non-account holder could exchange ₹2000 banknotes at bank branches, ensuring that this move does not disadvantage those without bank accounts.

The withdrawal of the ₹2000 notes triggered a legal challenge. A public interest litigation was filed in the Supreme Court vacation bench comprising Justice Sudhanshu Dhulia and Justice KV Viswanathan by BJP leader and Advocate Ashwini Kumar Upadhyay. The challenge was against the Reserve Bank of India and State Bank of India's notifications that the exchange of ₹2000 currency notes was only permissible with valid identity proof. The petitioner questioned the necessity of this requirement, arguing that it may present difficulties for certain public sections.However, the division bench of Chief Justice Satish Chandra Sharma and Justice Subramonium Prasad rejected this public interest litigation. The court upheld the requirement for valid identity proof for the exchange of ₹2000 notes, reinforcing the RBI's stance on this matter. This ruling clarifies that the exchange of ₹2000 currency notes without valid identity proof will not be permissible, a condition designed to ensure the integrity and security of the process.

The decision to withdraw the ₹2000 denomination banknotes from circulation carries several implications. From an economic perspective, the availability of high-denomination banknotes can facilitate certain types of economic activity, such as high-value transactions. However, these high denomination notes have also been linked with negative issues such as the increased risk of counterfeit notes and the facilitation of illicit activities, including tax evasion and corruption.

In this context, the withdrawal of ₹2000 notes can be seen as a move aimed at mitigating these risks. By encouraging the use of lower denomination notes and digital payments, the RBI may increase transparency and traceability in the financial system, thus tackling the potential misuse of high denomination notes.

The withdrawal of the ₹2000 notes also represents a significant logistical operation. With millions of these notes in circulation, collecting, verifying, and destroying these notes will be a considerable task. Banks must ensure that they have adequate systems and procedures to handle this process efficiently and effectively.For its part, the public will need to adjust to this change. Individuals holding ₹2000 notes must ensure they exchange or deposit them before the September 30, 2023 deadline. They must also adapt to using lower denomination notes or digital payments for high-value transactions.

In conclusion, the RBI's decision to withdraw the ₹2000 notes represents a significant change in the country's economic landscape. It's a move that will likely have a range of impacts, from individuals' daily lives to the economy's broader workings. As this process unfolds, it will be interesting to see how these impacts play out and how the Indian public adjusts to this new financial reality.