Five years after demonetisation, high value notes comprise 85.7% of total

When the demonetisation of notes of Rs 500 and Rs 1,000 denomination was announced in 2016 – the main objective of which was to curb black money – 86.4% of the currency in circulation was formed by those two high value notes. This, because people generally tend to hoard currencies with higher value.

A new Rs 500 bank note was put into circulation after the earlier Rs 500 notes were rendered invalid. The Rs 1,000 note was never printed again, instead a Rs 2,000 note got pumped into the system.

Value remains high

Five year later, the high value notes – the Rs 500 and Rs 2,000 denomination bank notes – continue to be very high, constituting 85.7% of the total currency in circulation.

The Rs 500 note, in terms of value, is 68.4% of the total currency notes in circulation as at the end of March 2021, RBI data showed. The Rs 2,000 notes constitute 17.3% in value.

The Rs 500 note gained in terms of value over the last five years, while the total value of the Rs 2,000 bank notes fell.

Before the demonetisation exercise, the value of Rs 500 was 47.8% of the total value. The value of Rs 500 note has gone up sharply in the last five years, which is 68.4% as of end March 2021.

When the Rs 2,000 note was introduced in November 2016, its value in total circulation was 50.2%. Since then, its value in total circulation dropped to 17.3%, recorded at the end of the financial year 2020-21.

The volume game

The composition of the high value bank notes – Rs 500 and Rs 2,000 – in terms of their volume in the total circulation also underwent interesting changes over the last five years.

According to Reserve Bank of India data, 38,679 million pieces of the Rs 500 note are in circulation as on March 31, 2021 – which constituted 31.1% of the currency in circulation, in terms of volume.

There were 2,451 million pieces of the Rs 2,000 note in circulation as on March 31, 2021, which is merely 2% of the total value of notes in circulation.

When the demonetisation exercise was announced, Rs 500 notes formed 17.4% of the total volume of notes, while Rs 1,000 constituted 7%.

The number of Rs 2,000 notes in circulation has fallen in the last five years. From 3,285 million pieces in March 2017, it has fallen to 2,451 million pieces as of the end of March 2021.

The share of Rs 2,000 notes peaked by the end of March 2018 when there were 3,363 million pieces of such notes in circulation. In the last three years, the number of pieces has fallen by 912 million. In terms of volume, the Rs 2,000 note is now only 2% of the total, as compared to 3.3% in 2018.

ATM cassette

The fall in the number of Rs 2,000 notes has prompted automated teller machine (ATMs) operators to replace the cassette containing Rs 2,000 note to Rs 500.

“In the last 8-10 months, there has been almost no supply of the Rs 2,000 bank note. We have replaced the cassette containing Rs 2,000 note with Rs 500 note,” said a senior official from a company that manages ATMs. “Out of the four cassettes, now there are two cassettes of Rs 500 note, one each of Rs 200 and Rs 100,” the official added.

The process to change the denomination in the ATM is much simpler now than earlier, the official said.

“When the Rs 2,000 note and the new Rs 500 note were announced after demonetisation, it was a much tougher task to change the configuration of the ATM. One has to visit the ATMs for that purpose. Now it's much easier as it can be done from the backend,” the official added.

The Rs 2,000 note was introduced in 2016 to have a quick value, though it was not fitting in the overall scheme of the demonetisation exercise, bankers said.

Many countries have adopted the near variation of the Renard series, that is, 1:2 or 1:2.5 ratio between adjacent denominations of currency, which means that the denomination should be twice or two and half times of its preceding denomination. “Such a ratio allows exchange of value ordinarily in a maximum of three denominations,” RBI had said while announcing the Rs 200 bank note in 2017.