The Rs 2,000 notes introduced after the Modi government demonetised old Rs 500 and Rs 1,000 notes back in November 2016 have seen a sharp drop in their circulation in the last one year ended in March 2019 (FY19), the Reserve Bank of India (RBI) said in its annual report. The central bank is also mulling the introduction of new varnished Rs 100 notes but on a field trial basis first.
"International experience suggests that varnishing of banknotes is expected to increase their life and durability, reduce the banknote replacement requirements and thereby lower the overall security printing expenditure," the RBI said in its report.
The RBI in its annual report released on Thursday said the Rs 2,000 notes had shrunk in terms of value and volume in the FY19. There were 3,363 million such notes in circulation at the end of March 2018, 3.3% of the total currency in circulation in terms of volume. Meanwhile, in value terms, the share of Rs 2,000 notes in total currency circulation was 37.3%.
However, this number fell to 3,291 million pieces in FY19, 3% in volume terms and 31.2% in value terms of the total money in circulation.
On the contrary, the value and volume of Rs 500 notes increased substantially from 15,469 million pieces in FY18 to 21,518 million pieces in FY19, which was 19.8% (FY19) of the total circulation in volume terms in comparison with 15.1% (FY18) and 51% (FY19) in value terms as compared to 42.9% (FY18).
"There was a sharp increase in the value of Rs 500 banknotes in circulation from 42.9% to 51.0% over the year," the report said.
Thus, the share of Rs 500 notes in value terms is more than half of the currency in circulation.
"In value terms, the share of Rs 500 crore and Rs 2,000 crore banknotes, which had together accounted for 80.2% of the total value of banknotes in circulation at end-March 2018, increased to 82.2% at end-March 2019," the report said.
The Rs 2,000 currency notes were introduced in November 2016, which drove out over 85 per cent of the currency notes in circulation at that time. Back then, the Rs 2,000 note was circulated in huge volumes to mitigate the cash shortage that arose due to the note ban.
The government had to face some flak for introducing high-denomination Rs 2,000 notes right after demonetising the Rs 1,000 and Rs 500 notes on grounds that it would help in hoarding and money laundering, the very practices demonetisation was supposed to end.