Data from the RBI’s annual report indicates that the overall indent and supply figures for banknotes grew marginally from 2225 Crore in 2021-22 to 2430 Crore in 2023-24. In terms of denomination, the indent of Rs. 500 denomination fell from 1280 Crore to 900 Crore during the same period. The expenditure on printing currency reached a two-decadal high (barring the demonetization year) of ₹5,101 Crore in 2023-24.
Currency management is one of the highly visible functions of central banks globally, impacting everyone’s daily life. People judge central banks by the ease of access and quality of the notes they use, making this a reputational risk. Central banks are tasked with protecting the integrity of banknotes with new designs and security features, estimating demand, and ensuring a smooth supply and withdrawal of soiled notes.
With millions of notes circulating daily, India is among the biggest players in the global banknote scene. The consumption of materials for such humungous production of currency notes also makes India as a major market for the suppliers of all ingredients and equipment involved in the banknote lifecycle.
In today’s story, we look at the currency management in India and trends in currency circulation in India.
Indent and supply of Rs. 500 denomination fall for third- consecutive year
Post-demonetisation, the Rs. 2000 denomination was the highest-valued currency note in the banking system. However, the RBI has stopped printing Rs.2000 banknotes since 2018-19. in pursuance of the “Clean Note Policy” of the Reserve Bank of India, it has been decided to withdraw the ₹2000 denomination banknotes from circulation. Post such withdrawal of Rs. 2000 banknote from circulation, Rs. 500 banknote is the highest valued currency banknote that is in circulation.
The overall indent and supply figures for banknotes grew marginally from 2225 Crore in 2021-22 to 2430 Crore in 2023-24. In terms of denomination, the indent of Rs. 500 denomination fell from 1280 Crore to 900 Crore during the same period. Rest all denominations saw an increase in both indent and supply during the same period.
Value of 500 Rupee notes Quadruple in circulation post-demonetization.
Between 2017-18 and 2023-24, the total value of the currency in circulation, encompassing both coins and notes, nearly doubled from Rs. 18.3 Lakh Crore to Rs. 35 Lakh Crore. Banknotes constituted 99% of this circulation, with coins making up the remainder.
During the demonetization period in 2016-17, the 500 Rupee notes represented only 22% of the total value of banknotes in circulation, while 2000 Rupee notes accounted for 50%. However, post-demonetization, the share of 2000 Rupee notes gradually declined, while that of 500 Rupee notes increased. In 2023-24, the 500 Rupee notes comprised a significant 87% value of all banknotes in circulation, up from 22% in 2016-17.
The introduction of the ₹2000 banknote in November 2016, under Section 24(1) of the RBI Act, aimed to swiftly address the economy’s currency needs following the withdrawal of legal tender status for ₹500 and ₹1000 banknotes. Subsequently, a decision was made to withdraw the ₹2000 denomination banknotes from circulation, while maintaining their legal tender status. A press release issued on 19 May 2023, instructed the public to deposit and/or exchange ₹2000 banknotes at bank branches and Reserve Bank issue offices. As of 19 May 2023, ₹3.56 lakh crore worth of ₹2000 banknotes were in circulation, and by 31 March 2024, 97.7% had been returned to the banking system.
Currency Printing costs grew by 3.5x over the last two decades
Central banks bear the costs of designing, issuing, safeguarding, and distributing banknotes and coins. Ensuring that banknotes are easily authenticated by the public and have a long circulation life is crucial. Thus, banknote design becomes a blend of art, science, and economics, striving for cost-effectiveness, security and durability.
Banknotes involve operational costs like printing, distribution, and storage. High production volumes mean these costs significantly impact the monetary economy. In India, the expenditure on printing currency reached a two-decadal high (barring the demonetization year) of ₹5,101 Crore in 2023-24, a substantial increase from ₹1,444 Crore in 2004-05, marking a 250% rise. Post-2016 demonetization, printing costs more than doubled from ₹3,420 Crore to ₹7,965 Crore. While costs of printing declined gradually until 2020-21, they have risen again since.
This increase, despite the increased digitization of the economy, needs a detailed analysis. Greater investment in research and development is needed to enhance the durability of banknotes to withstand moisture and dirt, extending their lifespan and reducing printing costs.
Detection of Counterfeit Notes Hits Second Lowest Since 2010-11
Counterfeit currency poses a significant challenge for nearly every nation, and India is no exception. The issue of fake Indian currency notes (FICNs) gained attention prior to demonetization, with tackling counterfeit currency being one of the stated objectives of the policy. Following demonetization, there was initially a decrease in the detection of counterfeit notes. However, in 2021-22, there was a rise in the total number of counterfeit notes detected, reaching 2.31 lakh currency notes. This figure decreased slightly to 2.22 lakhs in 2023-24. Among these, Rs. 500 notes accounted for the majority, with 85 thousand counterfeit notes detected in 2023-24, constituting around 40% of the total. Despite a decline immediately after demonetization, the number of counterfeit Rs. 500 notes has shown a year-on-year increase since 2019-20, although there was a slight decrease in 2023-24 compared to previous years. Notably, 2023-24 saw the highest-ever detection of counterfeit Rs. 2000 denomination notes, the year when a decision to withdraw these notes was taken.
