Share of High-Value currency notes back to Pre-demonetization levels

Making the economy a less-cash one and reducing the share of ‘high-value currency notes in the system were few of the goals of demonetization. While the currency in circulation has doubled in the last five years, the share of ‘high-value currency notes in the system by value is back to pre-demonetization levels of more than 85%.

Recently, the Reserve Bank of India (RBI) released the annual report for the year 2020-21. The report is a statutory report of its Central Board of Directors, covering the working and functions of the RBI for the transition period of nine months (July 2020 – March 2021) following the decision in 2020 to change its accounting year from July-June to April-March to align its financial year with that of the government. One key area that the report addresses is the details of currency in circulation (CiC), that is, banknotes and coins and the related numbers like volume & value of notes in circulation, indent, supply, cost of printing, detection of fake notes, etc.

The RBI, in its report, stated that the thrust of currency management during the year was to make available an adequate quantity of clean notes in circulation in light of the COVID-19 pandemic. In this story, we focus on the decadal trend in the volume and value of different denominations of banknotes that are in circulation. It has to be noted that the year referred to in this story is the financial year (April to March).

Volume of notes in circulation has increased by 7.2% while value has increased by 16.8% in 2020-21

Presently, the RBI issues notes in denominations of Rs. 2, Rs. 5, Rs. 10, Rs. 20, Rs. 50, Rs. 100, Rs. 200, Rs. 500 and Rs. 2,000. The volume of currency notes in circulation refers to the number of notes that are in circulation. Overall, the number of banknotes in circulation, including all denominations, has increased from 69,384 million notes in March 2012 (end of 2011-12) to 1,24,367 million notes in March 2021 (end of 2020-21), recording an increase of almost 80% in 10 years. An increase of 11% in the volume of notes was observed in 2016-17, the only year to record double-digit growth. This was in the backdrop of the demonetization of Rs. 500 and Rs. 1000 currency notes in November 2016 as a measure to reclaim black money & make the economy a less-cash one. The volume of notes in circulation by March 2021 increased by 7.2% compared to March 2020.

Meanwhile, the total value of notes in circulation (total amount) was about Rs 10.3 Lakh crores by the end of 2011-12 which increased to Rs 28.27 lakh crores by the end of 2020-21, an increase of 168.5%. In 2016-17, the value of the currency in circulation dropped by 20% as compared to 2015-16 because of demonetization. By the end of 2020-21, the value of currency notes in circulation has gone up by 16.8% compared to the end of 2019-20.

According to RBI, the year 2020-21 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.

No indent was placed for printing of Rs. 2000 notes in 2019-20 and 2020-21

In terms of the denomination-wise volume of currency in circulation, it is observed that-

The volume of Rs. 2 and Rs. 5 notes in circulation by the end of 2020-21 is the least in the ten-year period (2011-12 to 2020-21).
The volume of Rs. 10 notes in circulation by the end of 2020-21 is the least since 2014-15.
After demonetization, the volume of Rs. 20 notes in circulation more than doubled by the end of 2017-18. But the volume dropped since then. Similarly, the volume of Rs. 100 notes increased by 60% in 2017-18 and have reduced since then.
The volume of Rs. 50 notes also went up by 83% post demonetization. However, the volume has been increasing since then.
The volume of Rs. 200 notes, introduced post demonetization, has more than tripled in the last four years.
In 2016-17, the number of Rs. 500 notes in circulation dropped to 1/3^rd following demonetization. Since then, the volume of Rs. 500 notes have been increasing steadily. By the end of 2020-21, there were over 38,679 million Rs. 500 notes as compared to 15,707 million notes by the end of 2015-16 i.e., before demonetization. In other words, the volume of Rs. 500 notes have more than doubled in the last six years.
In the case of Rs. 2000 notes, which is currently the highest denomination in circulation, there has been a gradual drop in the volume of notes from 3,363 million notes by the end of 2017-18 to 2,451 million notes by the end of 2020-21. According to a parliament response, no indent was placed with the security printing presses for printing of Rs. 2000 denomination notes in the years 2019-20 and 2020-21. Further, it was stated that no decision to discontinue the printing of Rs. 2000 denomination bank notes were taken by the Government. What this indicates is that Rs. 2000 notes are slowly being withdrawn from the system.

As of March 2021, one in three notes in circulation was of Rs. 500 denomination

Analysis of the share of each denomination of currency note in terms of volume of notes in circulation indicates that,

The percentage share of Rs. 2 and Rs. 5 notes is declining and has reached 9% by end of 2020-21 compared to 16.6% by the end of 2011-12.
Until 2016-17, Rs. 10 notes accounted for more than one-third of the total volume of currency notes. However, since then, its share has dropped and touched 23.6% by the end of 2020-21.
Share of Rs .20 and Rs. 100 notes which witnessed a sudden increase post demonetization, are back to their pre-demonetization levels.
Since its introduction, the share of Rs. 200 notes has been increasing and accounted for 4.7% of notes in circulation by the end of 2020-21.
Share of Rs. 500 notes dropped to less than 6% by the end of 2016-17 from 17.4% in the preceding year. Nonetheless, its share has gone up substantially in the last four years. Nearly one in three notes (31.1%) in circulation by the end of 2020-21 was an Rs. 500 note.
Share of high-value currency (Rs. 500 and Rs. 1000) in terms of volume, was less than 20% by the end of 2011-12 and went up to 24.4% by the end of 2015-16. However, post demonetization, the share of high-value currency, that is, Rs. 500 and Rs. 2000, doubled from 9.2% by the end of 2016-17 to 18.4% in 2017-18 and increased to 33.1% by the end of 2020-21.

Value of Rs. 500 denomination was the highest among all denominations in the last decade

Analysis of the value of each denomination in circulation for the last ten years indicates that,

Value of Rs. 2 and Rs. 5 in circulation has touched the lowest by the end of 2020-21.
Value of Rs. 10 denomination in circulation is the least since 2014-15. By the end of 2020-21, the value of Rs. 10 denomination in circulation was Rs. 29,368 crores.
Value of Rs. 20 denomination was Rs. 20,316 crores by end of 2016-17 which reduced to Rs. 18,116 crores by the end of 2020-21.
By the end of 2020-21, the value of Rs. 50 denomination was Rs. 43,762 crores, the highest in the last ten years. Compared to 2011-12, the value of Rs. 50 denomination has gone up 2.5 times. The increase was the highest in 2016-17, following demonetization.
Rs 1.9 lakh crores were the value of Rs. 100 denominations in circulation by the end of 2020-21. However, it had dropped from Rs. 2.53 lakh crores by the end of 2016-17.
In the last four years, the value of Rs. 200 denomination has gone up from Rs. 37,060 crores to Rs 1.17 lakh crores by the end of 2020-21.
Value of Rs. 500 denomination by the end of 2020-21 was Rs. 19.34 lakh crores, the highest for all denominations in the decade under consideration. It has increased nearly four times since 2011-12.
Rs. 2000 denomination in circulation had a value of Rs 4.9 lakh crores by the end of 2020-21, the lowest since introduction.

Share of ‘High-Value’ currency in the system back to more than 85%

Share of value of each denomination in the total value of currency notes in circulation in the last ten years reveals that,

By value, the share of Rs. 2 and Rs. 5 denomination has dropped to 0.2% in the last four years.
Rs. 10 denomination has the lowest since 2011-12, reaching 1% by the end of 2020-21.
Share of Rs. 20 denomination has dropped from 1.5% by end of 2016-17 to 0.6% by the end of 2020-21.
Since demonetization, the share of Rs. 50 denomination is the least, at 1.5%, by the end of 2020-21.
Share of Rs. 100 denomination, which had once touched 19.3% (by end of 2016-17), has dropped to a ten-year low of 6.7% by the end of 2020-21.
Though the share of Rs. 200 denomination has doubled since introduction, its share reduced to 4.1% by the end of 2020-21 from 4.4% by end of 2019-20.
In terms of value, Rs. 500 denominations accounted for more than two-thirds of the total by the end of 2020-21. In fact, share by value of Rs 500 denomination is the highest in the last 10 years in consideration.
When they were introduced in 2016-17, share by value of Rs. 2000 denomination was more than 50%. However, it dropped to nearly one-third, accounting for 17.3% of the total value by the end of 2020-21.
If we take the high-value currency denominations- Rs. 500, Rs. 1000, and Rs. 2000 into consideration, it is seen that, except in the year 2016-17 when demonetization was announced, the high-value denominations accounted for more than 80% of the total value of CiC. Rs 500 and Rs 1000 accounted for 86.4% of CiC by value by the end of 2015-16, prior to demonetization. By the end of 2016-17, their share dropped to 73.4%. However, there has been a gradual increase in their share since then. By the end of 2020-21, Rs. 500 and Rs. 2000 accounted for 85.7% of the value of CiC, the second-highest in the decade and almost back to the pre-demonetization levels.

Cost of printing notes has reduced over the years

The cost of printing the currency notes increased from Rs. 2,736 crores in 2011-12 to Rs. 3,421 crores in 2015-16, prior to demonetization. Following the introduction of new currency notes and new denominations in 2016-17, the cost went up to Rs. 7,965 crores. However, since then, the cost has dropped to Rs 4,378 crores in 2019-20, and to Rs 4,012 crores in 9 months of 2020-21. In 2020, because of the nationwide lockdown, RBI had temporarily halted the printing of currency notes and resumed it in a phased manner.

Share of ‘High-Value’ notes back to pre-demonetization levels

A check on the growth of high-value currency was one of the goals of demonetization. The PMO acknowledged this in 2017, a year after demonetization. However, the cheer seems to have been short-lived as the share of high-value notes in the system is back to pre-demonetization levels of more than 85%. The currency in circulation has also more than doubled in the last five years despite an increase in digital transactions. The cash to GDP ratio is also back to if not more than the pre-demonetization levels. While the COVID-19 pandemic may have contributed to an increase in currency in the system, the increasing trend was visible much before the pandemic struck.

Featured Image: Share of ‘High-Value’ currency notes