Rs 2,000 notes in circulation not huge, won’t affect gold demand, rupee value

The decision of the Reserve Bank of India (RBI) to withdraw Rs 2,000 denomination banknotes from circulation will not have any major impact on gold demand and also on the rupee value, experts said.

According to them, the number of Rs 2,000 denomination notes in circulation (or stocked in lockers) is not huge. "The number of Rs 2,000 currency notes in circulation is not large. This is not like demonetisation of Rs 500 and Rs 1,000 currency notes that happened in 2016," Hareesh V, Head of Commodities Research, Geojit Financial Services, said.

According to Hareesh, there are other investment avenues and further, there is a limit for using hard cash to purchase gold. "The RBI decision will also not have any bearing on the gold/silver futures," he said. "People were aware about the uncertain future of Rs 2,000 currency notes and hence they were not stocking the same. Further, there is sufficient time to change the withdrawn note and hence there is no urgency for the holders of that currency," S Santha kumar, General Secretary, Madras Jewellers and Diamond Traders Association, said.

He said that as per government rules, cash purchase of jewellery is allowed only up to Rs 200,000. "There may not be any increased demand for gold or silver due to the withdrawal of Rs 2,000 denomination banknotes," Kumar said.

The RBI on Friday said that Rs 2,000 denomination notes to the value of Rs 3.62 lakh crore were in circulation as on March 31, 2023. Hareesh said that even if people decide to convert their Rs 2,000 notes into US dollar, there will not be any major impact on the value of the Indian rupee.

"As witnessed during demonetisation, we expect the deposit accretion of banks could improve marginally in the near term. This will ease the pressure on deposit rate hikes and could also result in moderation in short-term interest rates," Karthik Srinivasan, Senior Vice President, Financial Sector Ratings, ICRA, said.