Key challenges that suspected hoarding of Rs 2000 notes may pose to government

The government today said that there are more than adequate Rs 2,000 notes in the system. "There has been no recent decision regarding Rs 2000 note production," tweeted Subhash Chandra Garg, the Department of Economic Affairs secretary. The comment from Garg came after the reports of RBI stopping the printing of Rs 2000 note surfaced in the market. Of late, the Rs 2000 note has been causing a headache to the policymakers. The bankers have been complaining that Rs 2000 notes are not coming back in the system. There is a suspected hoarding, which will create more challenges, going forward.

i) Despite the high value Rs 2000 note constituting 37 per cent of the total value of currency in circulation, the volume of the currency hasn't changed drastically. The currency volume, which comprises notes and coins of various denominations, was growing at 5-8 per cent year-after-year. In the just concluded year (June-July), the volume of currency grew by over 2 .09 per cent.  High volume of currency in the system means higher cost of printing and logistics etc.

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ii) The Rs 500 note comprised 17.4 per cent in terms of volumes in 2016 i.e before demonetisation. In 2018, the Rs 500 notes comprise 15.1 per cent. If the additional growth of money in the country will be substituted by more Rs 500 notes, the volume of Rs 500 notes will increase or get back to the earlier numbers of volume growth i.e 5-8 per cent. The other option is to increase the supply of Rs 200 notes, but that will again increase the volume of notes in the system.

iii) The Rs 2000 note not coming back in the system will also create challenges for ATMs as the banks have to push more Rs 500 and Rs 200 notes, which increases the cost dynamics in terms of logistics and ATM storage space.

iv) There is also a case of reintroducing Rs 1000 notes. The Rs 2000 note is actually helping the counterfeiters.

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