Withdrawal of Rs 2,000 notes will smoke out hoarders

Remember the story of Jayadrath’s killing in the Mahabharata? As Arjuna had taken a vow to kill Jayadrath before the sun sets to avenge his son Abhimanyu’s death, Dronacharya created a three-layered sheath to protect Jayadrath. However, to draw him out from his hideout, Lord Krishna covered the sun to hoodwink Jayadrath into believing it was sunset. When Jayadrath emerged, Arjuna severed his head with his arrows. The fake sunset was a tactical manoeuvre to ferret Jayadrath out of his hideout.

To understand RBI’s move to withdraw the Rs 2,000 notes, this story provides an important parallel. Similar to Krishna’s move to ferret out Jayadrath, withdrawing the Rs 2,000 note can ferret out a substantive part of the ?3. 6 lakh crore of currency in circulation (CiC) in Rs 2,000 notes. I estimate that less than 1% of economic transactions in India employ the Rs 2,000 note. RBI data shows CiC in the form of Rs 2,000 notes is currently Rs 3. 6 lakh crore. As the amount of total money supply was Rs 228 lakh crore in May, the Rs 2,000 note accounts for only 1. 6% of the overall money supply.

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This piece appeared as an editorial opinion in the print edition of The Times of India.


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