After A Decade, Currency Flow Witnesses Decline In H1 Following Rs 2000 Note Withdrawal

For the first time in the last one decade, currency in circulation (CIC) has declined in the first half of FY24. The CIC on 31 March 2023 was Rs 33.78 trillion, which fell to Rs 33.01 trillion in September 2023, a difference of about Rs 76,658 crore.

In the first half of the last two fiscals, the CIC went up by Rs 33,357 crore in FY23 and Rs 84,978 crore in FY22. In FY21, the Covid year, it was up Rs 2.43 trillion during April-September.

This year, it is down mainly because of the withdrawal of Rs 2000 bank notes, announced on 19 May 2023. According to the latest data released by the Reserve Bank of India (RBI), Rs 2000 currency notes worth Rs 3.46 trillion have been returned, and that is 96 per cent of the Rs 3.56 trillion of the Rs 2000 notes in circulation till 19 May 2023.

This means that however RBI pumped in Rs 2.69 trillion during April-September, the CIC fell because the amount pumped in was lower than the amount went out.

Of the Rs 2000 bank notes returned, only 13 per cent were exchanged and the rest remained deposited in bank accounts. Those notes then went to the RBI’s vault.

Gaura Sengupta, economist with IDFC First Bank, said, “Based on past RBI updates, nearly 87 per cent of the Rs 2000 notes was deposited and the rest were exchanged. It is the deposited portion that is the effective reduction in the CIC. The actual reduction in currency in circulation is much lower, which indicates that individuals are withdrawing cash after depositing Rs 2000 notes. Hence, on a net basis the reduction in currency in circulation is much lower.”

“A possible implication is that the currency leakage in H2FY24 could be higher as a proportion of the Rs 2000 notes deposited are withdrawn,” she said.

Due to the increase in digital transactions, the growth of the currency in circulation has come down in recent years. In fact, CIC growth was in single digits in FY23 and FY22, in contrast with the previous years.

“Another factor limiting currency leakage after Covid-19 is the increasing trend of electronic payments. Indeed, in H1 FY24, electronic payment transactions are nearly six times what they used to be in H1 FY20 (pre-Covid-19),” Sengupta added.