Share of High-Value currency notes back to Pre-demonetization levels
Sai Krishna Muthyanolla
June 3, 2021
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-
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,
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,
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,
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