It appears that the RBI flushed Rs 1.1 lakh crore worth Rs 2,000 notes out of the system last fiscal. Evidence came from none other than the central bank’s FY20 Annual Report released Tuesday. Both the value and volume of pink notes shrunk a staggering 16% even as the number of Rs 500 and Rs 200 notes merrily inched higher.
In volume terms, a record 5,512 lakh pieces of Rs 2,000 notes were taken off the circulation grid. If there were 32,910 lakh pieces as on March 2019, they fell to 27,398 lakh pieces as on March, 2020. Predictably, value reduced from Rs 6.5 lakh crore to Rs 5.4 lakh crore.
In percentage terms, it reduced to 22.6% of total currency in circulation from 31.2%, clearly reflecting that the share of Rs 2,000 notes in the overall currency mix was intentionally being reduced. Though we have seen similar purging in FY19, the quantum was next to nothing at 2%. In FY20, however, the pace of reduction was rather significant at over 16 per cent—a first in recent memory and a trend never witnessed during the Rs 1,000 notes era.
When the Rs 1,000 note was the highest denonination, a de-growth was seldom seen. Shockingly, it didn’t even record flat growth since 2001 when it was re-introduced. This perhaps explains why RBI neither took a fresh indent nor printed even a single Rs 2,000 note all through FY20.
The pink notes 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 uncomfortabel with, as high-value notes are easier to hoard. Hence, the purging of higher denominations and printing more lower denominations such as Rs 500 and Rs 200 notes over the past three years beginning 2018.
The value of Rs 500 notes shot up 36% from Rs 10 lakh crore in FY19 to Rs 14 lakh crore in FY20, while Rs 200 notes jumped 34% from about Rs 80,000 crore to Rs 1 lakh crore during the same period. Total currency in circulation itself punched in 15% growth from Rs 21 lakh crore in FY19 to Rs 24 lakh crore in FY20.