HYDERABAD: It now appears certain that efforts to lower our reliance on Rs 2,000 notes have been set in motion. Evidence came from none other than the RBI's FY19 annual report released Thursday. For the first time since its debut on November 2016, Rs 2,000 notes have shrunk both in value and volume in FY19.
If in FY18, the value of the pink notes stood at Rs 6,72,600 crore, it fell to Rs 6,58,200 crore in FY19. In other words, the highest-denomination notes worth Rs 14,400 crore were pulled out of the system in the past year, though it's unclear whether it was due to counterfeits or any other reason. Similarly, the volume of Rs 2,000 notes too fell from 3,363 million pieces in FY18 to 3,291 million pieces in FY19, a de-growth of 2 per cent.
In contrast, value and volume of Rs 500 notes shot up 39 per cent each in FY19 over FY18, while its share in the total currency mix increased from 43 per cent to 51 per cent, reflecting that Rs 500 could be the cornerstone of our currency mix. Predictably, Rs 2,000 notes, which accounted for 50 per cent share of the total currency in FY17 fell to 37 per cent in FY18 and further down to 31 per cent in FY19 -- clearly indicating that its share in the overall currency mix is intentionally being reduced.
The Rs 2,000 note had an important purpose to ease the shortage of money supply following demonetisation. Now, that supply may have reached a level that the central bank is uncomfortable with, as high-value notes are easier to hoard. Hence, by purging higher denominations and printing more lower denominations including Rs 200 and Rs 100.
Shockingly, a de-growth in then high-denomination note (Rs 1,000) was seldom seen, at least in two decades! The Rs 1,000 note, which was until 2016 the highest denomination, never even recorded flat growth either in volume or value since 2001, when it was re-introduced. Lastly, the annual report also reveals that the central bank literally stopped printing Rs 2,000 notes, probably in its attempts to limit its supply. The indent (order) and supply of Rs 2,000 note in FY19 fell from 151 million pieces to 47 million pieces in FY19. For context, and the indent and supply for Rs 500 notes stood at 11,692 and 11,468 million pieces respectively.
Meanwhile, because of the steep increase in Rs 500 notes, the combined high-value note share including Rs 2,000 to the total currency in circulation increased from 80 per cent in FY18 to 82 per cent in FY19.