NEW DELHI: The Reserve Bank of India (RBI) appears to be taking baby steps to flush out the high-value Rs 2,000 denomination notes from the monetary system.
Over the last four years, Rs.1.82 lakh crore worth pink notes, which were introduced in 2016 soon after the government’s decision to demonetise old Rs. 500 and Rs. 1,000 notes, have gone out of circulation, showed the central bank’s latest annual report released Thursday.
In 2017-18, the value of Rs. 2,000 notes were at a peak of Rs. 6.72 lakh crore, but the level has now dropped to Rs. 4.90 lakh crore, translating into a de-growth of 27 per cent. In terms of volume, a record 9,122 lakh pieces of such notes were taken out of circulation. As of March 2021, the highest-denomination notes accounted for 17.3 per cent of overall notes in circulation, down from 37.3 per cent in FY18 and 22.6 per cent in FY20.
The government had decided to introduce Rs. 2,000 notes in a bid to ease the shortage of money supply following demonetisation. However, the RBI stopped printing such notes over the past two years. One reason could be that the RBI is intentionally withdrawing the denomination since black money is often hoarded in high-value notes. Secondly, it could be because high-value transactions are being carried via digital modes and the common man is avoiding Rs.2,000 notes as they aren’t easy to break into smaller denominations. “Periodically, there are rumours of such notes being demonetised which is also why people are reluctant to hold on to such notes. Going by the trend, these notes will disappear over a period of time,” said Madan Sabnavis, chief economist, CARE Ratings.
Similarly, it also makes sense for the RBI to go for more Rs. 200 notes instead of Rs. 100 amid rising inflation, thus saving on printing costs. And that could be a reason why Rs. 100 notes constituted just 15.3 per cent of the volume of total banknotes in circulation in FY21 as against 17.2 per cent a year ago. Meanwhile, the report said the RBI is in the process of introducing varnished banknotes in Rs. 100 denomination on a field trial basis with a view to elongate the life of the banknote.
To make up for the precautionary ‘dash-for-cash’ due to the Covid-19 pandemic, however, the RBI has ramped up printing of Rs. 500 notes throughout the fiscal.
The volume of Rs. 500 notes among total banknotes in circulation rose to 31.1 per cent as of March 2021 compared to 25.4 per cent a year ago (19.8 per cent in March 2019 and 15.1 per cent in March 2018). The Rs. 500 denomination constituted the highest share at 31.1 per cent followed by Rs. 10 denomination banknotes. In value terms, however, the share of Rs. 500 notes accounted for 68.4 per cent of total banknotes in circulation. Together with Rs.2,000, the share of these banknotes accounted for 85.7 per cent of the total value of banknotes in circulation as on March 31, 2021. In all, the central bank spent Rs. 4,012 crore on printing notes in FY21, according to the annual report. At the same time, there was an increase of 31.3 per cent in counterfeit notes detected in the denomination of Rs. 500 [Mahatma Gandhi (New) Series] when compared to the previous year even as counterfeit notes detected in other denominations declined.
Notably, the overall currency in circulation has been increasing in tandem with the rise in digital payments. Both value and volume of banknotes in circulation increased by 16.8 per cent and 7.2 per cent, respectively, during 2020-21 as against an increase of 14.7 per cent and 6.6 per cent, respectively, witnessed during 2019-20.
Volume of notes in circulation rose to 12,436.7 crore pieces in FY21 from 11,597.7 crore pieces in 2019-20. “The year witnessed a higher than average increase in banknotes in circulation primarily due to precautionary holding of cash by the public induced by the Covid-19 pandemic, and its prolonged continuance,” RBI said in its report.