Rs 500 denomination banknotes gain significance: RBI study
Mumbai: Share of Rs 500 denomination bank notes has gained significance and accounted for 47 per cent of the total currency in circulation in 2010-11, a study by the Reserve Bank shows.
"Rs 500 denomination notes quickly emerged as the second most important denomination since 1998-99 and replaced Rs 100 denomination as the most important denomination in 2003-04. Its share in value among all denominations peaked at 47 per cent in 2010-11," the study said.
It said during 1990s, there was a significant migration from the smaller denominations (Rs 50 and below) to Rs 100 and from Rs 100 to Rs 500, resulting in a significant increase in the share of Rs 500 denomination note, followed by other denominations.
However, the share of 100 rupee denomination currency notes has declined substantially over the years with emergence of 500 and 1,000 rupee denominations as substitutes.
"...Rs 100 accounted for close to 50 per cent of the value of the total currency in circulation throughout the three decades 1970s to 1990s...With Rs 500 and Rs 1,000 emerging as substitutes, its share declined to 14.8 per cent in 2010-11," the empirical study on demand for currency notes said.
Also, the share of Rs 10 denomination currency notes progressively declined in importance from 34.3 per cent in 1970-71 to 2.2 per cent by 2010-11, the study shows.
The study also revealed that Rs 20 denomination notes that substituted for Rs 10 denomination and gained in importance till 1982-83 (accounting for 8 per cent of the total value of the currency in circulation), steadily declined in significance, accounting for only 0.6 per cent of the value by 2010-11.
However, Rs 50 denomination notes which substituted for Rs 10 and Rs 20 denominations - replacing Rs 10 to become the second most important denomination (in value terms) during the 1980s and 1990s (up to 1997-98) - peaked at 32.1 per cent in 1992-93 declined to just 1.7 per cent in 2010-11, the study said.
It further said introduction of Rs 1,000 denomination notes in 2000-01 was followed by its rapid rise to account for 27.8 per cent in 2008-09, replacing Rs 100 to be the second most important denomination by 2007-08.
The study said the changes in the underlying structure of household and firm-level denomination-wise demand for currency (by value) are attributable to multiple factors.
"While the most significant factors in this regard could be the rate of inflation and change in real GDP, other factors having a bearing could be: changes in the distribution of income across individuals and sectors, extent of monetisation of the economy, availability of alternative modes of payment, changing motives for holding currency, etc."