Data: Rs. 500 & Rs. 2000 notes now account for 87% value of the ‘Currency in Circulation’
Sai Krishna Muthyanolla
June 10, 2022
The recently released annual report of the RBI for 2021-22 indicates that the ‘Currency to GDP’ ratio fell to 13.7% by the end of March 2022 from the high of 14.4% by the end of March 2021. However, the share of high-value notes of Rs. 500 & Rs. 2000 in the value of the currency in circulation increased to 87%.
The Reserve Bank of India (RBI) recently released its Annual Report for the year 2021-22. This is the first Annual report released for the complete year after changing its accounting period from the July-June cycle to the April-March cycle, to align with the government’s financial year.
Details of ‘Currency in Circulation (CIC)’ is among the key information that is provided in RBI’s Annual Report.  In its previous ‘Annual Report of 2020-21’, RBI stated that the thrust of currency management during that year was to make available an adequate quantity of clean notes in circulation in wake of the COVID-19 pandemic. Accordingly, data indicates that there has been a higher increase in the volume of currency in circulation during 2020-21.
In this story, we look at the trends in ‘Currency in Circulation’ as of end-March 2022 based on the latest annual report. Volume & Value of currency notes, trends in various denominations of the currency, etc. are among the various parameters that we analyse in this story.
Notes in Circulation continue to increase in 2021-22 but at a slower rate
The volume of currency notes in circulation implies the number of currency notes that are in circulation. Currently, the Reserve Bank of India issues notes of the denominations – Rs. 2, Rs. 5, Rs. 10, Rs. 20, Rs. 50, Rs. 100, Rs. 200, Rs. 500 & Rs. 2000.
In the latest annual report, RBI states that even during 2021-22, the efforts of RBI remained focused on ensuring an adequate supply of clean banknotes in the economy, in the wake of the second wave of the COVID-19 pandemic which induced renewed restrictions across the country.
The volume of the currency notes in circulation by end of 2021-22, was 13.05 thousand crores. This is about a 5% increase over the volume by the end of 2020-21 when it was 12.44 thousand crores. While there is an increase in the overall volume, the growth is slower compared to earlier.
As noted earlier, the volume of the currency notes in circulation grew by 4.96% in 2021-22, while in 2020-21, the growth rate was 7.24%. The rate of growth in 2021-22 is better than only one year in the last ten years i.e., in 2017-18 when it was 2.1%.
The value of the total currency notes in circulation also increased in 2021-22 to Rs. 31.06 lakh crores. A growth of 9.86% was registered in the value of the notes in circulation.  In the previous year, growth in the value was 16.77%. Over the last 10 years, the growth in the value of the total currency in 2021-22 is better than only 2016-17 when the total value of currency notes in circulation recorded a negative growth rate of 20%.
On the other hand, the total volume of coins in circulation has also increased from 12.29 thousand crores in 2020-21 to 12.46 thousand crores in 2021-22. Correspondingly, the value of coins in circulation has increased from Rs. 26.8 thousand crores to Rs. 27.9 thousand crores in 2021-22.
Fall in Currency to GDP Ratio during 2021-22 compared to 2020-21
Along with the reduction in the circulation of cash, a lower ‘Currency to GDP’ ratio is also one of the intended objectives of demonetization. As highlighted, the trend in ‘currency in circulation’ indicates a contrasting picture with a year-on-year increase both in terms of volume & value.
With a growing economy, the currency in circulation is bound to increase. Hence ‘Currency to GDP’ ratio is a better indicator to understanding the extent of cash in the economy. During Demonetization i.e., by the end of 2015-16, Currency-GDP ratio was 12.1%. This fell to 8.7% by the end of 2016-17.
However, in the ensuing years, there has been a year-on-year increase in the Currency-GDP ratio. It has recorded the highest jump post-demonetization in 2020-21, where-in it was 14.4% i.e., an increase by 2.2 points over the previous year.  RBI’s data indicates that the Currency-GDP ratio by the end of 2021-22 fell to 13.7%, a drop of 0.7% from the high of 2020-21.
As already highlighted, while the value of the currency in circulation has continued to increase in 2021-22, the growth rate was lower than earlier. RBI’s annual report indicates that unlike the fall in GDP during 2020-21, the economy has registered a growth in 2021-22, despite the impact of 2nd & 3rd waves of the COVID-19 pandemic.
While the Currency-GDP ratio for 2021-22 is lower than the previous year, it is still higher than both the pre- & post-demonetization years. In fact, it is the second-highest in the 10-year period between 2012-13 to 2021-22, after 2020-21.  Whether this falling trend will continue as the economy grows to post the pandemic remains to be seen.
Rs. 500 notes constitute 35% of the total currency notes in circulation during 2021-22
As per RBI’s Annual Report, only the currency notes of Denominations Rs. 20, Rs. 200 & Rs. 500 have registered an increase in the volume in circulation. The number of Rs. 20 notes increased from 0.91 thousand crores to 1.1 thousand crores. There was also a slight increase in the number of Rs. 200 notes in circulation. However, the major increase was in Rs. 500 notes, which increased from 3.87 thousand crores to 4.55 thousand crores in 2021-22.
Rs. 500 currency notes already have the highest share of the total currency notes in circulation, which further increased in 2021-22. By the end of 2020-21, Rs. 500 notes accounted for 31.1% of the total currency notes in circulation, which further increased to 34.9% by end of 2021-22.
The share of Rs. 20 notes have also increased from 7.3% by the end of 2020-21 to 8.4% by the end of 2021-22.
Rs. 10 notes, which form the second-highest volume of currency notes in circulation, have seen a declining share. Their share fell from 23.6% by the end of 2020-21 to 21.3% by the end of 2021-22.
In an earlier story, we highlighted the fall in the volume of Rs. 2000 notes in circulation. This is the highest value denomination, introduced after demonetization. By the end of 2021-22, the circulation of Rs. 2000 notes fell further to 0.21 thousand crores, from 0.25 thousand crores by the end of 2020-21. This translates to a fall in share from 2% to 1.6%.
RBI data also indicates that there was no indent for printing new notes of Rs. 2000 even during 2021-22 like the immediately preceding years. Meanwhile, there is an increase in the indent for Rs. 500 and Rs. 10 notes in 2021-22.
Rs. 500 notes make up 73% of the total value of currency notes in circulation
In an earlier story, we highlighted the increase in the share of Rs. 500 notes in terms of the total value of the currency in circulation. The total value of Rs. 500 notes that are in circulation by end of March 2022 were Rs. 22.77 lakh crores. This constitutes 73.3% of the total value of the currency in circulation. By end-March 2021, the total value of Rs. 500 currency notes in circulation were Rs.19.33 lakh crores, which was 68.4% of the total value of currency notes in circulation.
On the other hand, the share in the value of other high denomination notes i.e., Rs. 2000 currency note continues to fall. By the end of March 2021, they accounted for 17.3% of the total value of currency notes in circulation but fell to 13.8% by end of March 2022. It ought to be noted that at the time of introduction of Rs. 2000 notes i.e., in 2016-17, the share in its value was more than 50%.
The overall value of ‘high-value currency’ denominations i.e., Rs. 500 & Rs. 2000 increased from 85.7% by the end of 2021-22 to 87.1% by the end of 2021-22, contributed by the increase in the share of Rs. 500 notes.
Data indicates that a continued increase in currency in the system
Reducing the circulation of currency in the system, especially high-value currency, and hence a lower ‘Currency to GDP’ ratio was one of the main goals of demonetization. However, the data indicates a contrary trend.
While RBI has stated its intent to increase the supply of cash in view of the COVID-19 pandemic, the increasing trend in currency circulation was visible even before the pandemic. As already pointed out earlier in this story, while the ‘Currency to GDP’ ratio has reduced compared to last year, it remains to be seen if this trend would hold in the coming years.