1. Was demonetisation a total failure? Read what RBI report says before making your conclusion

Was demonetisation a total failure? Read what RBI report says before making your conclusion

The Reserve Bank of India's annual report today revealed that only around 1.4% of scrapped Rs 1,000 notes didn't come back into the banking system post demonetisation.

By: | New Delhi | Updated: August 31, 2017 10:27 AM
demonetisation, demonetisation report, rbi annual report, note ban, rbi report, rbi RBI annual report was released on Tuesday.

The Reserve Bank of India’s annual report today revealed that only around 1.4% of scrapped Rs 1,000 notes didn’t come back into the banking system post demonetisation. Out of 632.6 crore pieces of Rs 1,000 currency notes in circulation, 8.9 crore haven’t yet returned to banks. Prime Minister Narendra Modi had announced the decision to scrap old Rs 500 and Rs 1,000 notes in a bid to weed out black money in the country on November 8, 2016.

In the weeks following demonetisation, ruling politicians at the Centre had claimed that most of the black money was stocked by people in the form of high-value currency notes like Rs 1000 and Rs 500. The RBI report doesn’t give a clarity on the number of old Rs 500 notes that didn’t return to the banks. However, the meagre amount of banned Rs 1000 notes not returning to the banks shows their claim was exaggerated.

According to the report, around 89 million old Rs 1000 notes were in circulation in March 2017, while in March 2016, around 6.3 billion Rs 1000 notes were in circulation. This means that 89 million (or 8.9 crore) of Rs 1000 notes, which were banned by Centre in November, didn’t return to the banks.

So, did demonetisation completely fail in bringing black money to the banks? The RBI report doesn’t clearly say whether demonetistion was a success or a failure. However, it does point out that a sharp dip in total currency in circulation (CIC) was recorded post demonetisation, helping India’s currency to GDP ratio compare with a host of advanced economies, including Germany and France.

“Buoyed by festival demand and a bumper kharif harvest, a renewed pick-up in currency in circulation was beginning to form in Q3 when demonetisation abruptly stifled it. On November 4, 2016, CIC had scaled an all-time high of Rs 18 trillion taking RM (Reserve Money) to a peak of Rs 22.5 trillion,” the report said.

demonetisation, demonetisation report, rbi annual report, note ban, rbi report, rbi Chart by RBI.

“At end-March 2017, CIC amounted to 8.8 per cent of GDP, down from 12.2 per cent in the previous year. At this level, India’s currency to GDP ratio compares well with a host of advanced and emerging market economies (such as Germany, France, Italy, Thailand and Malaysia),” it added.

During a short span from November 9 to December 31, 2016, the Reserve Bank supplied 23.8 billion pieces of bank notes into circulation, which was Rs 5,540 billion in value. Post demonetisation, the currency in circulation fell to Rs 9 trillion on January 6, 2017, a level which was seen more than six years ago.

According to the report, “While banks’ vault cash shot up in the immediate aftermath of demonetisation, it quickly dropped as the Reserve Bank mounted unprecedented liquidity absorption operations to mop up the massive influx of liquidity as SBNs were returned by the public. As a result of these large changes, a downward spiral in reserve money took it down to Rs 13.8 trillion (61 per cent of the peak) by January 6, 2017. Reserve Money is sum of a country’s currency in circulation and banks deposits with the RBI.

(This report was first published on August 30, 2017)

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  1. Annu Chopra
    Sep 3, 2017 at 8:20 am
    DEMONETISATION MATHS FOR DUMMIES Total cash in circulation in india prior to demonetisation A B C A Notes officially printed B Notes unofficially printed C Fake notes printed by countries like pakistan etc. ONLY amount of “A” is known. B and C amount may be even more than A 99 of known A category AMOUNT has been deposited in banks. Hence , amout equal to B C has gone out of circulation. Hence, demonetisation has been effective
    1. Prakash Pimparkar
      Aug 31, 2017 at 8:08 pm
      De-monetisation has boomeranged badly.There is no account of fake notes received by banks by design or default.during de-monetization, there was a spurt in printing fake notes ( Nashik, Maharashtra for example ) so criminals have exchanged fake notes in Bank.As it was the discretion of counter person to accept or reject..As it is impossible to count notes collected so far so there is no possibility of not only black money but fake currency converting to legitimate currency. What is needed to be informed is the quantum of fake notes collected by banks if not then the whole exercise was a big fraud on people.
      1. Suresh Bhave
        Aug 31, 2017 at 2:00 pm
        On 26th January 1946, after WW2, the French government demonetized the 1000 franc note to render the money the black-marketeers had amassed by profiteering during the war. It is a little-known fact and has never been mentioned in the debate on the recent demonetization.
        1. Suresh Bhave
          Aug 31, 2017 at 1:30 pm
          The figures of the demonetized currency returned to RBI does not tell the whole story. How much of it is fake. Actually, RBI does not have sufficient capacity to examine every note to separate out the fake currency notes, so we do not know that quantum. Secondly, one doubts if anyone knows how many notes of Rs 1000 and Rs 500 were actually in circulation. Some series were withdrawn from time to time in the past, but some of these could be in use and may be among the notes returned to RBI post-demonetization? There are likely to invisible notes, not known to RBI. The high-value notes were also printed in security presses in foreign countries and if any excess notes were printed for any reason by these private parties, these must have been waiting in the coffers of certain organizations or individuals. Their quantum may be known only to the top political brass and the security agencies. We will never know their quantum for such revelation it would embarrass the government.

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