The 19 May 2023 Reserve Bank of India (RBI) circular on demonetising the Rs. 2000 banknote is reflective of the central government’s learning from the 2016 demonetisation. It also shows the RBI’s preparedness to implement the discontinuation and absorb its impact. The announcement itself was better planned and devoid of drama as compared to 2016. Overall, this could be a political masterstroke for the Bharatiya Janata Party (BJP), particularly as it gets ready for the upcoming state elections and next year’s general election.

The narrative around demonetisation was thus built around the BJP’s 2014 election promise, and the absence of statements in support from the RBI suggested that it was just implementing political will. The PM’s televised announcement seemed more like a speech at a rally, focusing on politics rather than the economic justification guiding the decision. He took aim at the environment of corruption under the previous government, for example, which invoked a similar public outcry in response. Unconfirmed news about the new notes—such as various chip theories—also made it newsworthy for weeks.

Unlike 2016, the 2023 announcement was made by the RBI through a circular, suggesting both economic and political will this time around. When the top financial agency of the country appears to be in the driver’s seat, we can expect economic rationale to be in the forefront. The RBI being more in control is also evident in other particulars that the circular lists. This includes clarifications about the approach, rationale, and guidelines—all of which are a deviation from 2016, when the government repeatedly changed the goal posts. One day, the objective was to “break the grip of corruption and black money;” another day, it was to make India a cashless economy; and on yet another, to “neutralise money held by Maoists, terrorists, and human traffickers.”

The timeline identified in the 2023 circular clarifies how the RBI monitored the Rs. 2000 note and made plans before making the demonetisation announcement. The circular further notes that the Rs. 500 and 1000 banknotes were discontinued in 2016 because higher value notes are more conducive to changing hands between black marketeers. In this light, the 2000 denomination note was in fact an anomaly in the government’s logic of eradicating black money. The circular, however, also justifies the introduction of the Rs. 2000 note and does so with economic logic: “To meet the immediate currency requirement of the economy after withdrawal of the legal tender status of all Rs. 500 and Rs. 1000 banknotes in circulation at that time.”

The soundness of this round of demonetisation is also held up by the fact that the RBI halted the printing of Rs. 2000 notes a while ago—in 2018-19. Only a limited volume is therefore in circulation. While the announcement would have been a surprise for the Indian public, it is unlikely to create a shock for the economy.

Although the BJP is largely viewed as a slick political machine, the Modi government’s economic decision-making hasn’t attracted the same confidence. Successive union budgets have been unable to strike a chord with the middle class. The last time India saw the middle and underprivileged classes unite on this issue was when demonetisation was promoted as an attack on the rich. All states due for elections this year—with the exception of Madhya Pradesh —are currently ruled by parties other than the BJP. This could then be that opportunity for the government: unite these two socioeconomic classes, and in turn, convert this sentiment into votes, with elections just around the corner.

Cash tends to be used more during election time, but election campaigns are unlikely to see any disruption despite the discontinuation. Transactions of cash, liquor, and other goods that are used to ‘buy’ votes would still be supported by smaller denomination notes. Further, the high value Rs. 2000 note is least preferred for general transactions, with the Rs. 500 denomination being the most widely used currency. All in all, the government doesn’t seem to have much to lose—and has perhaps much more to win—from this decision.

This decision’s more direct impacts, such as on cash-oriented sectors like farming and MSMEs, will be clearer over time. It could lead to panic among those hoarding the demonetised note, or it could lead to larger crowds at rallies—or both. What is clear is that the RBI is in the driver’s seat this time. It suggests more economic logic than political expediency, although the latter will also come to be for the BJP, with a flurry of elections on the horizon.

Prerana Priyadarshi is Deputy Director, Projects, and Senior Researcher with the Centre for Internal and Regional Security (IReS) at IPCS.