One of the stated goals of demonetisation was to reduce the amount of cash in the economy. Eleven months into demonetisation, the amount of currency in circulation is now at 88 percent of the pre-demonetisation levels.
The government has on multiple occasions said that a less-cash economy was one of the goals of the demonetisation. Recently, the Prime Minister in his address to Company Secretaries at the inauguration of the golden jubilee year of ICSI also mentioned that the cash to GDP ratio has come down to 9 percent, from 12 percent before demonetisation. But what is the amount of currency in circulation 11 months after demonetisation?
The Reserve Bank of India’s (RBI) weekly statistical supplement shows that the total currency in circulation and currency with public, both are at 88 percent of the pre-demonetisation levels as of September 2017.
RBI's Weekly Statistical Supplement (WSS)
The RBI releases a WSS, that contains numbers about RBI’s assets and liabilities, foreign exchange reserves, business of the scheduled commercial banks, numbers about the money stock, currency in circulation, among other things.
As per the RBI’s definition, Currency in Circulation includes notes in circulation, rupee coins and small coins. Currency with Public is currency in circulation minus the cash with banks.
Demand deposits with banks include all liabilities (excluding inter-bank) that are payable on demand. Time deposits with banks are liabilities (excluding inter-bank) which are payable otherwise than on demand like fixed deposits etc.
Currency in Circulation Is at 88% of the Pre-Demonetisation Levels
The total currency in circulation just before the announcement of demonetisation, as of 4 November 2016 was Rs 17.97 lakh crore. This continuously decreased as old notes were being deposited in banks and reached a minimum of Rs 8.98 lakh crore on 6 January 2017.
This was the only occasion since October 2016 when the currency in circulation went below Rs 9 lakh crore. Since January 2017, the currency in circulation increased continuously as new notes were brought into circulation. The currency in circulation crossed Rs 15 lakh crore in June 2017 and was at Rs 15.88 lakh crore by the end of September 2017. This is slightly more than 88 percent of the currency in circulation just before demonetisation.
Proportion of the Currency With Public Back to Pre-Demonetisation Levels
Just before demonetisation, the proportion of currency with the public out of the total currency in circulation was 95.7 percent. In other words, out of every Rs 100 in circulation, Rs 95.7 was with the public and the rest Rs 4.3 with the banks.
This came down to the lowest of 76.8 percent towards the end of November 2016 when people were depositing all their old notes with the banks. As with the trend of total currency in circulation, the proportion of currency with public slowly increased to 90 percent in January 2017 and is back to 95 percent as of mid-September 2017.
Total Deposits in Banks Increase by Over Rs 6 Lakh Crore
One major fall-out of demonetisation is the enormous increase in the amount of deposits in banks. Just after demonetisation (as of 11 November 2016), the total deposits in banks (time & demand together) accounted for a little over Rs 108 lakh crore. This went up to a high of Rs 115.5 lakh crore as of 31 March 2017 (the extended last date for exchange of old notes).
Thereafter, the total deposits have again decreased to reach Rs 114.5 lakh crore as of mid-September 2017. Between November 2016 and September 2017, time deposits have increased by over Rs 4.5 lakh crore while demand deposits increased by over Rs 1.5 lakh crore.
(This article was originally published in Factly.)
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