Are banks equipped to replace 2,300 crore pieces of Rs 500 and Rs 1,000 notes?

The people who would be really hit are the ones who have stored their ill-gotten wealth in the now useless Rs 500 and Rs 1,000 denomination notes

Written by Harish Damodaran | Updated: November 9, 2016 7:41 am
500 notes, 1000 notes, 500 rs note, 500 rupee note, 1000 rs note, 1000 rupee note, 500 rupees, 1000 rupees, bank notes cancelled, Rs 500, Rs 1000. currency notes cancelled When told that the Rs 500, Rs 1000 notes with you will be worthless overnight unless exchanged with smaller denominations, it would straightaway translate into large queues before banks and post offices. (Source: Reuters)

Prime Minister Narendra Modi’s announcement to disallow use of existing Rs 500 and Rs 1,000 notes from this midnight caught everyone by surprise. Here’s some quick numbers on the implications of this move.

According to Reserve Bank of India data, the total outstanding currency in circulation in the Indian economy as on October 28 stood at Rs 17.77 lakh crore. We don’t know how much of this comprises Rs 500 and Rs 1,000 notes.

But an indicator of what it could be can be seen from the RBI’s latest Annual Report. This data shows that out of the total Rs 16.42 lakh crore value of bank notes in circulation as on March 31, 2016, as much as Rs 14.18 lakh crore, i.e. over 86 per cent, consisted of Rs 500 and Rs 1,000 notes. In terms of volumes, out of the total 9026.6 crore banknote pieces, 2,203 crore or 24 per cent-plus were of Rs 500 and Rs 1,000 denomination.

PM Modi scarps Rs 500, Rs 1000 notes: Here are the highlights from his address

Simply put, the de-monetisation of Rs 500 and Rs 1,000 notes, which is what Prime Minister Narendra Modi has announced will happen from Tuesday night, would mean more than Rs 15 lakh crore worth of high-value legal tender being withdrawn from circulation. It is likely that the bulk of this would simply be deposited by people in banks rather than be exchanged for lower denomination notes: Outright replacement of 2,300 crore banknote pieces will be an obvious logistical nightmare.

The people who would be really hit are the ones who have stored their ill-gotten wealth in the now useless Rs 500 and Rs 1,000 denomination notes. It will be virtually impossible for them to exchange all this money or even deposit these in banks, as taking wads of Rs 1,000 notes day after day is going to at some point invite questions from the taxman. Effectively, it means rendering much of this black money in the form of stashed cash worthless, as there are limits to either exchanging or depositing notes whose value may run to crores of rupee.

But even for the Aam Aadmi, there will be issues. If the Rs 500 notes with him/her are deemed worthless unless re-deposited or exchanged with smaller denominations, it would either way translate into large queues before banks and post offices. The temporary disruption to trade – we are not talking here of just real estate transactions having significant ‘black’ component, but even ordinary purchases of vegetables and other essentials in markets generally dealing with cash – may not be small.

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First Published on: November 8, 2016 10:19 pm
  1. B
    Bibekananda
    Nov 9, 2016 at 3:44 am
    Do you think before taking this step government didn't think all of the above things. What a joke think 100 time about your experience and government of India s experience.
    Reply
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      Bibekananda
      Nov 9, 2016 at 3:47 am
      These new notes are equipped with nano chip's
      Reply
      1. F
        FactChecker
        Nov 8, 2016 at 9:51 pm
        You need a cl in common sense. All these notes do not change hands every day. Also you can deposit Thisbe money in bank account and do transactions using card cheque and online. Do the real number is very very less than you quote.
        Reply
        1. I
          Irfan
          Nov 8, 2016 at 5:39 pm
          Talking in such condescending manner - what divine knowledge tells you a "big percentage" is in circulation ? Except for real estate(which is mostly black - if in cash) which other sector deals with such big amounts in 500/1000? Common man will not circulate so much money around - so relax. it's a bit pain but no panic
          Reply
          1. M
            MyTake
            Nov 8, 2016 at 9:09 pm
            If banks are not equipped leave the address and Govt. should be able to organise it to be delivered to your home or even in your Adhar Card linked account. How about this later option? lt;br/gt;Scared?
            Reply
            1. S
              Stonecold
              Nov 9, 2016 at 1:17 am
              I don't see any measures to crub black money but only destroying the circulating black money . what a short sighted measure . I think bjp just didn't like the design of the old note which was made during the opposition rule . What a dumb move . I am not surprised. It's only going to add pain and suffering to common man. I am sure all the big shots close to government knew about this and would have cleaned up there hands of all cash . bravo !
              Reply
              1. M
                Mavala
                Nov 9, 2016 at 6:51 am
                May I know what kind of clean up that the big shots would have done? Even If you know the news earlier, do you think it is possible to convert all the bigger denominations notes with smaller one without bringing it into account or without the knowledge of anyone. Total value of higher domination in circulation is 6-8 times the vale of smaller denominations.
                Reply
                1. S
                  sunny
                  Nov 8, 2016 at 6:49 pm
                  good joke
                  Reply
                  1. S
                    sunny
                    Nov 8, 2016 at 8:40 pm
                    i am a comman man not ruling the country that i should understand economy but our dear PM who was chaiwala does he understand the word economy
                    Reply
                    1. S
                      sunny
                      Nov 8, 2016 at 11:00 pm
                      instead of trasnfering millions of people why not move out one person
                      Reply
                      1. S
                        sunny
                        Nov 8, 2016 at 6:48 pm
                        is it EMERGENCY in india dictator modi rules the country person who doent know spelling of economy
                        Reply
                        1. S
                          sunny
                          Nov 8, 2016 at 8:34 pm
                          millions of people are cursing BJP and modi and their will not go in vain
                          Reply
                          1. A
                            Ajay
                            Nov 8, 2016 at 7:26 pm
                            Have you influenced by HAND to write this Article as I understand from the statement of spokesperson that HAND wants to create Panic in my Country...
                            Reply
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                              Amit
                              Nov 8, 2016 at 7:16 pm
                              No chip dear, this is a hoax. No reality in this news.
                              Reply
                              1. V
                                Vatsyayan Vatsyayan
                                Nov 8, 2016 at 7:16 pm
                                And u know all abt economy.
                                Reply
                                1. R
                                  Rajesh Takyar
                                  Nov 9, 2016 at 8:29 am
                                  According to Shri P R Sarkar a great philosopher express his opinion that the science of economics teaches that the " rolling of money'' Should never be blocked. The value of money increases with its mobility. That is , the more money changes hands, the greater is its economic value.. Society should establish its banking system in order to promote public welfare. But announcing all of sudden to ban all the prevailing notes of Rs. 500/- and 1000/- notes yields no effective measure to curb black money. Rather people are panic especially a low income employee. The enough time should have been given earlier rather to stop at once. It will decline in small scale rural and cottage industires. It is against the balanced economy. Rather PM should look into the defective system of educational and social system.
                                  Reply
                                  1. B
                                    balaMohan
                                    Nov 8, 2016 at 11:21 pm
                                    Smog invades entire India as Modi burns crores of pieces of Rs 500 and Rs 1,000 notes.
                                    Reply
                                    1. B
                                      Bhausaheb
                                      Nov 19, 2016 at 6:12 am
                                      In future there should be cash withdrawal curb from ATM and bank savings and current accounts say weekly 10000 and monthly 20000 so that people will be compelled to transact high value transactions through cards or cheque
                                      Reply
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                                        Bijan Mohanty
                                        Nov 8, 2016 at 7:10 pm
                                        Modi had created political chaos.the present decision will create economic chaos as the implementation strategy is dubious, lacks planning and shall har only the common man and small business men who had lots of hopes from modi but now are heart broken. Big corporates will not be affected because they live on bank loans mostly.
                                        Reply
                                        1. B
                                          Bijan Mohanty
                                          Nov 9, 2016 at 2:03 am
                                          Only modi is coming in the news channel. What about finance minister arun jaitley?
                                          Reply
                                          1. B
                                            Bijan Mohanty
                                            Nov 9, 2016 at 6:30 am
                                            What a govt? Money is the lifeline of people and modi govt. Is playing with them. First, no other than PM announced that banks will be closed for 1 day. Now, news coming that it will remain closed for 2 days. First, modi himself announced that per day, a person can exchange rs 4000. Now, notification has come that rs 2000 only can be exchanged only. First, fake news were spread that to curb terrorist funding, rs 2000 notes will have embedded plastic chips. Now, it seems thst the news was a false one. This man is playing with the nation with changing facts not knowing what hardship a common man is put to.
                                            Reply
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