In anticipation of the Reserve Bank of India’s (RBI) decision to withdraw the ₹2,000 notes from circulation, India is bracing for a second currency note exchange program. The exchange program, which commenced on Tuesday (22 March), has prompted some individuals to turn to gold as a store of value, leading to a premium in gold prices in the country.
On Monday, gold trading in India witnessed a premium for the first time in 11 weeks as citizens holding ₹2,000 notes opted to purchase gold instead of depositing their funds in banks. This trend is not limited to jewelers, as even citizens are exploring various ways to rid themselves of the pink-colored note.
Food delivery platform Zomato revealed that 72% of “cash on delivery” orders since Friday, when the RBI announced the withdrawal of the ₹2,000 note, were paid using these notes.
RBI Governor Shaktikanta Das announced on Monday that it is expected that the majority of the ₹2,000 notes will be returned by the September 30 deadline. The RBI has advised banks to cease issuing ₹2,000 denomination banknotes with immediate effect. However, Das emphasized that the ₹2,000 currency notes will continue to be legal tender.
Unlike the demonetization of ₹500 and ₹1,000 notes in 2016, the number of people holding ₹2,000 notes is relatively lower as the RBI ceased printing them in 2018-19. The introduction of the ₹2,000 denomination banknote in November 2016 aimed to meet the economy’s currency requirements promptly following the withdrawal of the legal tender status of all ₹500 and ₹1,000 banknotes in circulation at the time.
The total value of ₹2,000 banknotes in circulation has declined from ₹6.73 lakh crore at its peak on March 31, 2018 (representing 37.3% of Notes in Circulation) to ₹3.62 lakh crore, accounting for only 10.8% of Notes in Circulation as of March 31, 2023.
As India embarks on this second currency exchange program, the country is witnessing a shift in the usage and preference of its citizens regarding currency notes, with gold emerging as an alternative store of value for some.