What India's Decision to Scrap its 2000-Rupee Note Means for its Economy

India will withdraw its highest denomination currency note from circulation, the central bank said on Friday.

The 2000-rupee note, introduced into circulation in 2016, will remain legal tender, but citizens have been asked to deposit or exchange these notes by Sept. 30, 2023. The value of 2000-rupee notes in circulation is 3.62 trillion Indian rupees ($44.27 billion). This is about 10.8% of the currency in circulation.

The decision is reminiscent of a shock move in 2016 when the Narenda Modi-led government had withdrawn 86% of the economy's currency in circulation overnight.

When 2000-rupee notes were introduced in 2016 they were intended to replenish the Indian economy's currency in circulation quickly after demonetization. However, the central bank has frequently said that it wants to reduce high value notes in circulation and had stopped printing 2000-rupee notes over the past four years.

Improved banking system liquidity and an inflow of deposits into banks could mean that short-term interest rates in the market drop as these funds get invested in shorter-term government securities.

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