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Thursday, Sep 19, 2019

Demonetisation woes: Why Rs 2000 notes make you feel cashless

india Updated: Dec 02, 2016 12:13 IST
HT Correspondent
HT Correspondent
Hindustan Times
People stand in queue to withdraw money from a bank in Delhi on December 1, 2016.
People stand in queue to withdraw money from a bank in Delhi on December 1, 2016. (AP Photo)

Banks continue to struggle to meet the demand for cash given the delay in printing the new Rs 500 series, while Rs 2000 notes has fewer takers with no change to transact with.

The government’s shock announcement to demonetise 1,000 and 500 rupee banknotes caught the country off guard last month as the high value notes make up 86% of the Indian currency in circulation in value.

Public’s patience has been wearing thin since November 9 as they’ve been forced to wait in long lines to withdraw from banks, ATMs and post offices. December 1 was chaotic as people lined up once again at banks on payday.

We explain why Rs 2000 notes don’t make you feel secure in the times of cash crunch:

Rs 500 is the new Rs 100
As money stock grew in an expanding economy, the use of 500-rupee bills became as common as the ubiquitous 100-rupee note (see graph 1, 2)
Not enough Rs 500 notes
Demonetisation sucked out some 15 billion 500-rupee notes from the economy but the printing and distribution of their new version will take months
Rs 2,000 doesn’t go far
RBI printed large quantities of 2,000-rupee notes but those aren’t circulating much in the absence of smaller bills, especially the 100-rupee ones
Change is a problem
RBI is printing about 4-5 billion 2,000-rupee notes. For these to circulate well, they will need 80-100 billion 100-rupee bills. But there are only 16 billion 100-rupee notes in circulation. In other words, only one out of every five 2,000-rupee notes can be exchanged now.

Over the month since demonetisation was implemented, data also shows a sharp drop in consumer purchases in November, with mobile phones, FMCG, home appliances, real estate, and cars bearing the brunt.

Also read | Real estate, mobile phones, cars: Currency ban batters all sectors

First Published: Dec 02, 2016 10:46 IST