RBI Holding Back Rs. 2000 Notes? Here’s What SBI Report Explains

After the much debated and controversial decision of demonetisation of INR 500 and INR 1000 denominations notes in November, 2016 it is being rumoured that the Government may be planning a deliberate attempt to create a shortage of INR 2000 denomination notes in the Indian economy. The speculation has been fueled by the SBI research report which categorically indicates that the government may have plans to either hold back Rs. 2000 notes or stop the printing of the high end denomination altogether.

It is reported that the value of small denomination currency till March 2017 was INR 350 100 Cr. According to a report presented by Finance Ministry, the Reserve Bank of India (RBI) had printed 1695.7 Cr units of INR 500 and 364.4 Cr units of INR 2000 notes as on 8^th December valuating to INR 1 578 700 Cr. It is reported that INR 1 332 400 Cr worth of high denomination notes were in circulation as on 8^th December thus implying that nearly INR 246 399 Cr may not have been supplied in the market by RBI. These figures has been explicitly estimated by a report authored by Soumya Ghosh, group Chief Economic Adviser of SBI. The same report also insinuates that INR 246 300 may be a very conservative figure since the central bank also printed small denominations of INR 50 and INR 200 notes. All signs indicates that RBI might be planning a conscious effort in scrapping Rs. 2000 notes or pulling out the supply slowly in order to curb the high value cash transactions in the country. This can safely be assumed that the percentage of small denomination notes may have reached nearly 35% of the total value of cash circulation in the market. This is in high contrast to the 86-87% of INR 500 and INR 1000 denomination notes circulating in the market previous to 8^th November, 2017.

Though the move had resulted in immediate cash crunch in the economy but many economists believe that such deliberate steps to pull high denomination notes from the economy will not only curb black money but will also enhance digital financial transactions in the economy resulting in fairer money deals across the country.