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[Economics] People with this optional kindly explain the logic behind introduction of 2000 Rupees

Hello economics people

Govt recently banned existing higher denomination notes but also introduced at the same time 2000 rupees note and 500 note in their place. What is the logic behind this introduction of 2000 note? Kindly give deeper analysis wrt to any task force/committee recommendations.

Some generic reason that I can think of are:

1. To meet short term liquidity crisis
2. To make up for value depreciation of rupees or purchasing power

These 2 might not be full rational reasons behind it. Something else must be there which I can not find satisfactorily. Please explain with your knowledge what is that?
One burger a day, keeps fitness away.
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Comments

  • Managing short term liquidity crisis. It is not possible to print so many notes to make up for obsolete notes. Thus, 2000 is being printed.

    Also, though I'm not sure, they want to control the velocity of higher denomination notes, as the circulation rate of 1000 is 109%
    An Ounce of Action Is Worth a Ton of Theory
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  • edited November 2016
    I dont have a good grip on economics but i will try to reason out from whatever i have understood.

    1. To increase the total value of money ATMs can disperse in a single refill. Will provide some logistical relief in this heavy rush period.

    2. Introducing 2000 before 1000 "right now" is beneficial because, Speaking for only the current scenario, The numbers of hands that a 1000 rupee note can exchange is far higher than what a 2000 rupee can exchange. Therefore, it can reduce the velocity of money, It may provide whatever little relief from the short-term inflation that can be expected due to demand supply mismatch that is created due to the cash crunch.

    3. In second point we realized the benefits in current situation. Now lets see Why 2000 rupee for the future?
    Govt or RBI maybe expecting Inflation due to growth in the near future, so they want to make sure that there is enough cash in circulation by that time. Maybe 8 to 9% inflation will be the new target. I am not entirely sure, but this is what i feel. Till that time, even 1000 rupee notes will be back in circulation.

    Some may argue that it will help people handle bribes easily and hoard cash easily.
    My counter argument, 1000 rupee or 2000 rupee note, it hardly makes any difference. If someone is taking a bribe of 1 Lakh, the difference in the width of the bundle for 1000 rupee or 2000 rupee note would be lesser than half a centimetre. People will continue to take bribes and hoard cash irrespective of whether its 1000 or 2000. I agree 2000 makes it just a tad bit easier, but the difference is not so large that it will be a game changer for those who take bribes or hoard cash.

    Its just that the 2000 rupee note is introduced in the market at the same time when people are perceiving the recall of notes as a massive crackdown(in reality it is not) on black money. The timing of introduction is making people feel ironic.

    But, these are two different moves, 2000 rupee has more to do with the point number 3 i mentioned above, it has nothing to do with currency recall. Currency recall was mostly done to handle the issue of fake notes, terror funding, financial inclusion. Crackdown on black money(on whatever little), was just a mere byproduct of the measure and it will also create some sort of psychological change in how people will deal with the money now, earlier it was a free ride, now people will think twice when going illegal. Corrupt weeds will continue to be weeds till measures are brought to handle them.

    Also i am a little bit disappointed that there is a situation where people have to find out reasons for the introduction of 2000 rupee note, Govt should have clarified it in a proper manner. When there is no clarification, people can think 100 different reasons and therefore this confusion.
    Even finance minister dodged the question yesterday in press conference. This is not good.
    Good Bye. See you Later.
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  • edited November 2016
    Yes, the introduction of rs 2000 note is to manage short term liquidity crisis.
    This bold move will first flush out all the black money in the market.
    Although RBI has all the records of these new fresh currencies, it will be tougher to fake and easier to track.

    A professor from IIM B said that these new 2000 rs note have radio frequency identification (RFID) but govt is not coming forward to announce it but it must have some tracking mchanism in them.

    This type of move is not new and already done in 1946 and 1978 but time has changed and we have better technologies now compared to earlier.

    This move by the govt can't eradicate all the black money from the market as most of the black money is in the form of bullion or real estate or successfully sent out by hawala routes but definitely this one strock forced black money out of circulation including about 2 lakh IT raids across the country.

    Regarding introduction of rs 2000 note, as inflation goes up the value of rs 1000 note will go down and we need to have a higher denominations for our daily expenses as how many people will be able to keep rs 100 note with them?

    As heared, rs 1000 note will be back again with new design and features and rs 2000 note will be limited.

    So we can't say exactly as govt. also has not clarified everything regarding new currencies.
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  • I think it can foster the growth of cashless economy as people will use m-wallet for bill payments and 2000 denomination notes for buying heavy goods. Also people will be tempted towards less use of these notes which can result in less printing cost
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  • For short term liquidity crisis RBI should print more notes of short denominations because shopkeepers and retailers may not accept 2000 rs notes for daily goods
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  • 1.in india, money is used as asset by various people,especially business people.
    2.removing the 500 and 1000 rupees note will affect the business environment.especially it will rise the transaction cost
    3.in our country,most of the small shops are still to come under digital transaction.hence need of high denomination money is need of the hour.
    4.security -high denomination money reduce the chances of theft
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  • wont inflation grow? not on all products bt smhw
    as producers hv tendency to round off?
    it will matter in the end...definitely..
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