Currency-in-circulation growth dips to 3.7% in Feb

The Reserve Bank of India’s (RBI) decision to withdraw Rs 2,000 banknotes from circulation has significantly impacted the growth rate of currency in circulation (CiC). According to data ending February 9, 2024, CiC growth decelerated to a mere 3.7 per cent compared to 8.2 per cent a year ago.

This drastic drop is directly attributed to the demonetisation of Rs 2,000 notes announced on May 19, 2023. By January 31, 2024, nearly 97.5 per cent of these notes had returned to the banking system, leaving only Rs 8,897 crore worth in circulation.

Currency-in-circulation (CiC) refers to notes and coins in circulation, while currency with the public comprises notes and coins in circulation minus cash with banks.

According to the RBI, commercial banks have reported double-digit growth in deposits in January, which too can be attributed to withdrawal of Rs 2,000 currency notes.

The growth of Reserve Money (RM), as per the RBI data, decelerated to 5.8 per cent as on February 9, 2024 from 11.2 per cent a year ago (8.8 per cent adjusted for the first-round impact of change in Cash Reserve Ratio (CRR).

Components of RM include CiC, banks’ deposits in RBI and other deposits with the central bank.

The total value of Rs 2,000 banknotes in circulation was Rs 3.56 lakh crore at the close of business on May 19, 2023, when the withdrawal of Rs 2,000 banknotes was announced.

Public and entities holding such notes were initially asked to either exchange or deposit them in bank accounts by September 30, 2023. The deadline was later extended to October 7, 2023. Deposit and exchange services at bank branches were discontinued on October 7, 2023.

Starting October 8, 2023 individuals have been provided with the choice of either exchanging the currency or having the equivalent sum credited to their bank accounts at the 19 offices of RBI.

The Rs 2,000 banknotes were introduced in November 2016, following the demonetisation of the then-prevailing Rs 1,000 and Rs 500 banknotes.