How important was the note for the Indian economy?

The Reserve Bank of India (RBI) on May 19 announced the decision to withdraw Rs 2,000 banknotes from circulation in the Indian economy. Launched after Prime Minister Narendra Modi announced the demonetisation exercise on November 8, 2006, this is currently the largest note of all denominations in India.

RBI has given the deadline of September 30 to exchange their Rs 2,000 note at any bank branch across India. It has also iterated that these notes continue to be legal tender and can be used in daily transactions.

India has ten currency note denominations in circulation. These are: Re 1, Rs 2, Rs 5, Rs 10, Rs 20, Rs 50, Rs 100, Rs 200, Rs 500 and Rs 2,000. 

The RBI is responsible for issuing all currency note denominations, except Rupee 1, which is issued by the Union government.

The coins in circulation comprise 50 paise Rs 1, Rs 2, Rs 5, Rs 10 and Rs 20.

To put the central bank’s decision into perspective, it is important to look at the status of Rs 2,000 notes in circulation.

New series of banknotes

Immediately after demonetisation was announced in 2016, RBI launched a new Mahatma Gandhi series of Rs 500 and Rs 2,000 notes. Eventually, Rs 200 note was launched, and all the notes were released in line with the central bank’s Clean Note policy.

The Rs 2,000 and Rs 200 notes were new denominations introduced in 2016. But for all other denominations, except Rs 500, all the old notes continue to be legal tender even in the old series.

According to data on RBI’s website, the value and volume of banknotes in circulation have risen in India. The value and volume of banknotes in circulation increased by 9.9 per cent and 5.0 per cent, respectively, during 2021-22, compared with 16.8 per cent and 7.2 per cent, during 2020-21.

Rise of Rs 500 notes

The central bank’s data further reveals that the value of Rs 500 and Rs 2,000 notes in India has also risen in the last two years. As of March 31, 2022, the share of these two banknotes together accounted for 87.1 per cent of the total value of banknotes in circulation. It was Rs 85.7 per cent as on March 31, 2021.

While there is a jump in the total value and volume of these two notes, this is largely due to the rise of the Rs 500 note. Between 2020 and 2022, the share of Rs 500 notes in circulation by volume has risen from 25.4 per cent to 34.9 per cent.

In terms of value, the share of Rs 500 note has jumped from 60.8 per cent to 73.3 per cent.

Fall of Rs 2,000 notes

This is accompanied by a fall in circulation of Rs 2,000 notes by volume and value. In terms of volume, the share of Rs 2,000 notes fell from 2.4 per cent in 2020 to 1.6 per cent in 2022. In terms of value, the share of this note has fallen from 22.6 per cent to 13.8 per cent during the period.