Legal tender status for Rs 2,000 notes likely till 95% of the notes withdrawn

The legal tender status of the Rs 2,000 denomination banknotes being withdrawn from circulation will likely continue beyond the September 30 deadline for deposit or exchange till 95% of such notes are back with the central bank, an official source said.

Even though the recall of Rs 2,000 notes is not a demonetisation per se, a throwback to the demonetisation of the then Rs 500 and Rs 1000 banknotes in 2016 could explain why the government may not withdraw legal tender status immediately after September 30 withdrawal deadline.

The old 500 and Rs 1,000 notes were demonetised on November 8, 2016 through a notification issued under the RBI Act, 1934.  The notification allowed these notes to be deposited in banks or post offices by December 30, 2016. These notes ceased to be liabilities of the Reserve Bank of India from December 31, 2016 onwards and were also no longer guaranteed by the central government.  

However, the Specified Bank Notes (Cessation of Liabilities) Act, 2017, which was approved by Parliament on February 7, 2017, gave Indian residents who were outside India between November 9, 2016, to December 30, 2016, to deposit these notes till March 31, 2017. Similarly, non-residents who were outside India during the demonetization period were allowed to deposit notes till June 30, 2017.

Since the current exercise is being dubbed as the replacement `2,000 notes with other smaller denomination notes, the RBI and the government are not so much focused on the issue of ending the legal tender status of the high-value notes at the moment.

“If say 50% of notes do not come back, then there could be a final timeline declaring it to be legal tender,” Bank of Baroda chief economist Madan Sabnavis said. The RBI and the government have said that `2,000 banknotes will continue to be legal tender even after September 30, but have not commented on how long.

Meanwhile, MyGov website – a citizen engagement platform of the government of India – has sought comments on an idea to replace `2,000 notes with `100 and `50 notes. It even sough comments on an idea to replace all `500 denominated notes later.

“Replace all `2,000 notes with `100 and `50 notes. And latter replace all Rs 500 notes. This will make difficult to make large cash payments which will help in digital transaction and thus tax collections,” the MyGov post read. It was not clear when the post was shared on the website.