The Reserve Bank of India's (RBI) decision to withdraw Rs 2,000 banknotes from circulation in the economy has created confusion among the public. The banks started exchanging the Rs 2,000 notes, up to Rs 20,000 per person daily, with those of smaller denominations on Tuesday. People are also allowed to deposit the notes in their bank accounts.
On Tuesday, although there was no rush in banks to exchange the Rs 2,000 notes, there was very little clarity on the process and the documents required for the exchange. Media reports stated that some branches were asking people to fill up a form; on the other hand, other branches simply exchanged notes.
Earlier this week, the RBI governor said that the Rs 2,000 note was introduced after the demonetisation exercise in 2016 to quickly replenish the currency circulation in the economy. He added that now RBI wants to reduce the number of high-value notes and has enough stock of notes of smaller denominations to replace all Rs 2,000 notes.
With the move, the Rs 500 note will become the highest-valued banknote in the Indian economy. However, since the announcement last week, reports have surfaced claiming that the RBI had floated the idea of introducing Rs 5,000 and Rs 10,000 notes in the economy in 2014.
Rs 10,000 note due to high inflation
According to an earlier report by The Times of India (TOI), the RBI under Raghuram Rajan had recommended the introduction of Rs 5,000 and Rs 10,000 notes in the economy. In October 2014, the central bank had expressed this to the Public Accounts Committee.
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Why Rs 10,000 note?
The RBI had told the committee that the value of the Rs 1,000 note had been depleted due to high inflation in the economy. So, the country needs higher denominations to keep up.
Centre's stance on Rs 10,000 note
The decision was pending until 2016, and after demonetisation, the Centre approved the introduction of Rs 2,000 notes.
However, the printing of these Rs 2,000 notes started months before Prime Minister Narendra Modi announced the demonetisation exercise on November 8, 2016, The Economic Times (ET) report added.
According to a report by ET, finance minister Arun Jaitley said they did not accept the idea of Rs 5,000 and Rs 10,000 notes because they wanted a faster replacement of Rs 1,000 notes.
India had Rs 10,000 notes once
India has already had Rs 10,000 notes as its highest denomination in the past. According to the RBI's official website, this note was earlier introduced in 1938 with Lion Capital printed on it. RBI also printed Rs 5,000 notes that year.
However, these were demonetised in January 1946, just before the country's independence.
It was re-introduced in 1954 and subsequently demonetised in 1978.
In what denomination can the notes be printed in India?
According to Section 24 of the RBI Act, 1934, "Bank notes shall be of the denominational values of two rupees, five rupees, ten rupees, twenty rupees, fifty rupees, one hundred rupees, five hundred rupees, one thousand rupees, five thousand rupees and ten thousand rupees or of such other denominational values, not exceeding ten thousand rupees, as the Central Government may, on the recommendation of the Central Board, specify in this behalf."