The RBI, which froze printing of Rs 2,000 notes in the past two years, seems to be consciously pulling out pink notes from circulation.
In FY21, Rs 57,757 crore worth Rs 2,000 notes have gone out of circulation, going by the latest annual report released Thursday.
If in FY20, the value of the pink notes stood at Rs 5,47,952 crore, it fell to Rs 4,90,195 crore in FY21.
In other words, the highest-denomination notes worth Rs 57,757 crore were pulled out of the system in the past one year, though it's unclear whether it was due to counterfeits or other reasons. In fact, such purging has becoming an annual routine since FY19, when the central bank pulled out notes worth Rs 14,400 crore.
As of March 2021, the highest-denomination notes accounted for 17.3% of overall banknotes in circulation in FY21, down from 22.6% in FY20. In value terms, of the total Rs 28.26 lakh crore currency in circulation, Rs 2,000 notes comprised Rs 4.9 lakh crore as against Rs 5.47 lakh crore in FY20.
Similarly, the volume of notes too fell from 2,739 million pieces in FY20 to 2,451 million pieces in FY21, translating to a de-growth of 10%. In contast, the Rs 1,000 note, which was until 2016 the highest denomination, never recorded even flat growth either in volume or value since 2001, when it was re-introduced.
On the other hand, the central bank ramped up printing of Rs 500 notes to keep up with the demand for cash all through last fiscal. It now accounts for 68.4% of total banknotes in circulation, up from 60.8% just a year before.
Together, the share of Rs 500 and Rs 2,000 notes in value terms accounted for 85.7% as of March 2021 compared to 83.4% over the previous year.
According to the report, FY21 witnessed a higher than average increase in banknotes in circulation primarily due to precautionary holding of cash by the public due to the COVID-19 pandemic and its prolonged continuance. The value of total banknotes in circulation increased by 16.8% and 7.2% respectively in FY21 as against an increase of 14.7% and 6.6% respectively in FY20. In all, the RBI spent Rs 4,012 crore printing notes and coins as against Rs 4,378 crore a year before.
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, it is purging higher denominations and printing more lower denominations including Rs 500 and Rs 200.