London [UK]: Former Chief Economic Advisor Krishnamurthy Subramanian on Saturday said the withdrawal of Rs 2,000 currency note by the Reserve Bank of India would help to ferret out a substantive part of the Rs 3.6 lakh crore of currency in circulation (CiC) in Rs 2,000 notes, currently.
In a long tweet posted on Saturday, Krishnamurthy Subramanian said, “As we have seen in several raids, where mountains of currency stored using the Rs 2000 note were uncovered, all these instances of hoarding of cash involved Rs 2000 notes. As the use of the Rs 2000 note as a medium of exchange has declined significantly, it is being used primarily to hoard money.”
In continuation to this, he said the 80-20 rule suggests that even if 80 per cent of the people are legitimately storing this money in Rs 2,000 notes, they are likely to be storing only 20 per cent of the overall value.
“20 per cent of those who are storing the money in Rs 2,000 notes are likely to be hoarders who may account for 80 per cent of the value (Rs 3 lakh crore),” he added.
In addition to this, the former CEA also said, “The move will not inconvenience common people for five reasons.”
According to him, his first reason was that: “The Rs 2000 notes are not being used much as a medium of exchange. In fact, they currently constitute only 10.8 per cent of Currency In Circulation (CiC).”
Secondly, he said digital payments are being used in huge numbers for economic transactions. “So, the role of physical currency notes, esp. Rs 2000 note, as a medium of exchange has declined significantly,” he added
Thirdly, he mentioned that the Rs 500 note (together with digital money) can be used as a medium of exchange to seamlessly substitute even the minimal use of Rs 2000 note for this purpose.
Fourthly he said, “Digital transactions are expected to multiply 3x (three times) from now to 2026 (BCG report), thereby minimising the need for the Rs 2000 note as a medium of exchange even more in coming years.”
Lastly, he said, “Most importantly, as RBI (Reserve Bank of India) has said that the Rs 2000 note will continue to be legal tender (even beyond 30-Sep-2023 is my current understanding though RBI may need to clarify this), genuine folks holding the Rs 2000 note can exchange even beyond 30-Sep-2023.”
Due to all these reasons, he said it was “overall a good move”.