At the tail end of the previous week, the announcement that the Reserve Bank of India would begin pulling Rs 2,000 currency notes from circulation on May 23 was the most significant headline in the news realm. People will have until September 30 to either swap these notes or deposit them at bank branches or chosen RBI offices, despite the fact that they will continue to be considered a valid form of payment.

Following the government’s decision in November 2016 to prohibit the use of the Rs 500 and Rs 1,000 notes in order to combat an increase in the circulation of counterfeit currency, the introduction of notes with a denomination of Rs 2,000 was undertaken in order to remonetize the system.

But why did the Reserve Bank of India decide to pull these bills? There are a number of things that may be at play here. To begin, it would make perfect sense to discontinue the denomination that isn’t used nearly as often as the other denominations. According to statistics provided by the RBI, the total value of these banknotes has decreased from its all-time high of Rs 6.73 lakh crore on March 31, 2018, when it constituted 37.3 percent of notes in circulation, to its all-time low of Rs 3.62 lakh crore on March 31, 2023, when it constituted just 10.8 percent of notes in circulation. Over the course of time, a smaller proportion of total cash in circulation is represented by these notes, expressed as a percentage. As a result, it was quite reasonable to return these notes as quickly as possible rather than wait any longer.

Second, because of the widespread usage of these bills by criminal organisations, the Rs. 2,000 bills were a source of headaches for the government and the tax authorities. According to the information provided by the department of income tax, these notes have made up a significant portion of the illegal funds that have been discovered in recent years.

Nirmala Sitharaman, India’s Minister of Finance, said to Parliament in November 2019 that 43.22 percent of the undeclared cash that was confiscated during the fiscal year 2020 was in the shape of Rs 2,000 notes. During the 2018 fiscal year, the Rs 2,000 note contributed 67.91 percent of unaccounted cash. During the 2019 fiscal year, however, this percentage dropped to 65.93 percent. For the years 2020–2022, consolidated data is not yet available; nonetheless, it is probable that the pattern will be quite similar to that of the years before.

Third, counterfeiters were particularly fond of the Rs. 2,000 notes. Since the introduction of the Rs 2,000 notes, the counterfeit money mafia has extensively used them in their illegal activities. According to a study published by Business Standard, the majority of the counterfeit currency that was discovered over the course of the previous three years was in quantities of 2,000 rupees. According to the research, in 2021, the face value of recovered phoney notes of the Rs 2,000 denomination was Rs 4,84,78,000 crore. This figure was calculated using face value. In addition, authorities confiscated 90,566,000 counterfeit Rs. 2,000 bills in 2019, while 2,44,834 lakh counterfeit Rs. 2,000 bills were found in 2020. This most likely persuaded the administration that there is an impending threat associated with the continuation of these high-value invoices.

The production of Rs 2,000 notes was halted well back in 2019, which means that these currency notes would have been removed from circulation in the next several years regardless. However, it is possible that the government and the RBI made the unexpected revelation in an effort to shock those who were in possession of illicit money.

If holders of black money opt to deposit the money at bank branches all at once, they risk exposing themselves since they have a large number of unaccounted-for Rs 2,000 currency notes. However, it is certain that this group will discover a loophole that will pose difficulties for the tax department. There is a potential that those who are stockpiling illegal funds may make an effort to conceal their activities by dividing the stock into smaller amounts and depositing it in a number of different accounts.

However, in the short term, the removal of Rs 2,000 notes will assist in containing the black money scourge and, at least temporarily, will undermine the fake currency lobby. These effects will be caused by the fact that fewer people will be able to get their hands on these notes.