Opinion Bigger bang for the buck
The demand for higher denomination currency notes is clearly surging.
The demand for higher denomination currency notes is clearly surging. According to an analysis on currency usage in RBIs annual report (August 2012),notes of denomination 500 and 1,000 together accounted for 82 per cent of the total value of the banknotes in circulation till end-March 2012,sharply higher than the 76 per cent just two years earlier.
The analysis also shows that at 12.5 per cent,the growth in value of banknotes far outpaced the growth in volume terms (7.4 per cent) in 2011-12. While as an economy grows,there is a natural increase in the demand for bank notes of higher denomination,added to this is the pressure on account of the sustained spell of high inflation,or the rate at which the general level of prices is rising. With average headline WPI inflation staying at above eight per cent for well over 24 months since January 2010,the demand for higher currency notes to purchase items whose prices have risen over the years.
The rising share of Rs 500 and Rs 1000 in currency in circulation is clearly at the expense of the share of earlier high denominations Rs 100 and Rs 50 (SEE TABLE). Little wonder considering that the trip to the market for a round of household shopping,where a Rs 100 note would have probably sufficed less than five years back,might now require Rs 500 or more now. The increasing demand for high denomination currency notes comes at a time when the black-money brigade has stepped up the clamour for demonetising higher value banknotes. Demonetisation,however,will only serve to increase overall cost as more currency notes may have to be printed for disbursing the same amount of cash,apart from adversely affecting the banking system by way of increased logistic costs and impediments in handling and cash transportation.
The other interesting aspect to note is that despite increasing spread of technology-driven non-cash modes of payment,the demand for banknotes and coins continues to rise. While the Reserve Bank of India is the sole authority to issue banknotes in India,one rupee notes and coins of all denominations are issued by the government,even though they are put into circulation only through the central bank. The RBI carries out the issue of notes and management of currency through its 18 issue offices,one sub-office at Lucknow,a currency chest at Kochi and a wide network of 4,221 currency chests and 4,018 small coin depots.
anil.s@expressindia.com
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