Demonetization of high denomination notes and its implications

Abstract

Prime Minister Narendra Modi has announced demonetization of high denomination currency keeping in view the manifesto of the party to fight corruption and respecting the sentiments of voters. Despite the pain which people are facing in the exercise, generally the scheme has been hailed by Indians across the spectrum. The sentiments are positive and encouraging. In 1946 and 1978, similar demonetization was done in India but the scale at which it is being done now is unprecedented.

First, some facts about the demonetized currencies. The note of Rs. 500 was introduced in October 1987-88 while notes of Rs.1,000 were discontinued in January 1978 and reissued in November 2000. The history of Rs.1,000 note is interesting. It was first introduced in 1938 under the British rule and then demonetized in January 1946. Once again it was introduced in 1954 and demonetized in 1978 to be re-introduced in 2000. The indent of Rs.500 and Rs.1,000 have generally been higher than the supply sharing the preference of the people. The notes are injected into the economy through 4102 currency chests spread across the country. The total currency in circulation as on end March 31, 2016 is Rs. 16,415 billion of which notes of Rs.1,000 denomination account for 38.6 per cent (Rs.6,326 billion) and Rs.500 account for 47.8 per cent (Rs.7,854 billion). The number of notes in circulation, in terms of volume, are 903 billion of which Rs.1,000 account for 7 per cent (63 billion) and Rs.500 for 17.4 per cent (157 billion). The importance of Rs.500 has been increasing over the years, from 4.1 per cent on March 31, 1990 to 47.2 per cent on March 31, 2016. Similarly, the share of Rs.1,000 note has increased from 1.7 per cent in 2001 to 38 per cent in 2016. Read more at: https://www.americanbazaaronline.com/2016/11/22/demonetization-of-high-denomination-notes419675/