Currency in circulation may touch around Rs 20.9 trillion by FY19

Based on trend estimates, banknotes in circulation could potentially reach around Rs 20.9 trillion by FY19 (or 11.1 per cent of GDP); it was Rs 20.4 trillion at end-January this year. Had there been no demonetisation, the expected amount at the end of FY19 would have been Rs 22.45 trillion (or 11.9 per cent of GDP). In effect, the currency in circulation (CIC) – the technical term used – is at least Rs 1.5 trillion lower from trend estimates sans demonitisation.

The income velocity (IV) of circulation after showing a spike in the demonetisation period (FY17 velocity:12.1) has again gone back to its normal level of around 9.5 in FY18 and is estimated to come down further to 9.0 in FY19. IV refers to how fast money passes from one holder to the next. One reason could be that while CIC has expanded, IV has shown a sharp plunge, implying possibly currency of higher denomination of Rs 2000 notes is not getting adequately circulated in the economy. It could also imply that the Rs 200 notes are pushing up the CIC, but more of it.