Why new Rs 200 and Rs 50 currency notes bring demonetisation blues

The real deal is finally here.

 |  4-minute read |   23-08-2017
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The Narendra Modi-led government has given India something that previous governments hadn’t in quite some time: two new currency denominations.

After the November 8, 2016 demonetisation drive, India received the pink and difficult-to-use Rs 2,000 note. Now, less than a year later, we are all set to get a denomination that might just be a good thing – a Rs 200 note.

Speculations, rumours and hoax photos of the Rs 200 note have been floating around for a while, but the real deal is finally here. The finance ministry, in a gazette notification, specified the new currency note. In the notification, the Centre said that the Rs 200 note's specification was being done on the recommendation of the Central Board of Directors of the Reserve Bank of India (RBI).

”In exercise of the powers conferred by sub-section (1) of section 24 of the Reserve Bank of India Act, 1934 and on the recommendations of the Central Board of Directors of the Reserve Bank of India, the Central Government hereby specifies the denomination of bank notes of the value of two hundred rupees,” the official government notification read.

gazette_082317041338.jpgPhoto: Twitter

While the Centre has confirmed the existence of the Rs 200 note, it has not offered more details. According to various reports, the RBI is likely to put the proposed Rs 200 bank notes in circulation by the end of August or in the first week of September. An April report in MoneyControl quotes sources saying that the new notes will come with additional security features, to check counterfeiting. They also added that for better security, the central bank has proposed changing features of all notes every three to four years.

The Rs 200 note, along with the announcement of the Rs 50 note – a new currency note, is psychedelic blue, part of the Mahatma Gandhi (new) series bearing the signature of RBI governor Urjit R Patel – is an interesting turn of events. It is also noteworthy (pardon the pun) that, as per the RBI, all the Rs 50 notes issued by the RBI in the earlier series will continue to be legal tender.

50-note-inside_08181_082317041731.jpgPhoto: DailyO

The missing link between The Rs 100 note and the Rs 500 note, a currency note worth Rs 200 is likely to makes things easier for people struggling to get change. It is a move that is also likely to ease the cash crunch that we still (occasionally) deal with post-demonetisation, where the Modi government banded the usage of Rs 500 and Rs 1,000 notes, effectively rendering 86 per cent of the Indian currency – amounting to an astounding Rs 14 lakh crore approximately – useless. 

Are the introduction of these notes, perghaps a sign of another impending demonetisation drive?

"There is no other denomination available between Rs 100 and Rs 500, and the RBI is expecting Rs 200 notes to become very popular and that's why it is taking every step to ensure availability of it," a source told The Times of India.

According to an old report in The Statesman, “The central government is preparing to gradually phase out the new Rs 2,000 note. The government is also preparing to bring in laws to take penal action against hoarders of the new Rs 2,000 note, according to people in the know of the development.”

The report adds that the idea behind introduction of the high denomination Rs 2,000 currency was to quickly remonetise the economy. Once the cash vaccum that demonetisation had created is filled, the requirement for a currency of that high a value will no longer make much sense.

Additionally, according to an estimate by the SBI economic research, the share of higher denomination notes (Rs 500 and Rs 2,000) has come down to about 70 per cent to the overall share from 86 per cent before the country's currency swap programme.

Phasing out the Rs 2,000 note makes sense. It is too huge a denomination, especially when the next biggest denomination is Rs 1,500 away. Plus, with large denominations, there is always more risk of counterfeiting. Add to that, in a cash-heavy economy like India, small denominations makes sense purely in the sense of everyday use.

200_082317041757.jpgHoax image of the Rs 200 note, from the internet. [Photo: Twitter]

According to several reports, the Reserve Bank of India has stopped printing the Rs 2,000 currency notes altogether and will not be bringing in new notes in the current financial year. The month of July saw a shortage of Rs 2,000 notes. Many attribute this scarcity to cash-hoarding, given that it is easier to hoard black money in Rs 2,000 notes as compared to other denominations. 

Mint report quotes an anonymous source (who is aware of the inner workings of the Reserve Bank of India), according to whom, about 3.7 billion Rs 2000 notes amounting to Rs 7.4 trillion had already been printed, when the printing process was allegedly stopped five months ago. The report also adds that RBI’s printing press in Mysuru has started printing the new Rs 200 notes, which are likely to come into circulation by August.

The introduction of new denomination and the cutting down on the production of the high-value currency note are as good indications of the much-predicted end of the Rs 2,000 note's life span, as can be.

Also read - Is India prepared for demonetisation 2.0?

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