How much time it will take to print and replace 500 and 1000
currency notes India?
A realistic and optimistic answer: Nearly three months going into February
2017.
According to Reserve Bank of India annual report for 2015-16
following is relevant data about INR 500 and 1000 denomination currency notes.
There were 15,707 million 500 denomination and 6,326 million 1000 denomination currency
notes in circulation as of March 2016.
Volume of currency notes (millions) as of March 2016
|
Value (in billions)
As of March 2016
|
|
500
|
15,707
|
7,854
|
1000
|
6,326
|
6,326
|
All notes
|
90,266
|
16,415
|
Source: Based on RBI Annual Report 2015-16 published 29 August 2016.
10 million = 1 crore, 1 billion = 100 crores
|
||
Together 500 and 1000 denominated notes constitute 86.4% of the
total value of all currency notes in circulation (See Table VIII.1 reproduced
from RBI Annual report.)
 |
| Source: Reserve Bank of India, Annual Report 2015-16, dated 29 August 2016. Page 89. Accessed online 25 November 2016 Full annual report of RBI is available here https://www.rbi.org.in/SCRIPTS/AnnualReportMainDisplay.aspx Only Currency Management section from which this data is extracted is available here https://rbidocs.rbi.org.in/rdocs/AnnualReport/PDFs/8CURRENCYC8DA67E8EB574B8C84A75AE4D52DEBED.PDF |
With effect from 9th November 2016 total of
22,033 million currency notes (volume) valued at 14,180 billion were made
illegal tender. This decision though makes exception for certain type of payments
such as paying for electricity, petrol, and water bills etc for few weeks. But eventually a value worth 14,180 billion will need to
be printed in new currency notes of different denominations like 50, 100 and
new denomination 2000 and new 500 ones. Question now bothering people is
how much time it will take to replace currency of this value? To answer this question three further questions need to be
answered.
- In what denomination the replacement currency will be printed?
- How many new currency notes are required in chosen denomination?
- And finally what is the capacity of printing machines to print?
If it is assumed only 2,000 denomination currency notes will
be printed to replace value of 14,180 billion, then number (volume) of new 2000
notes to be printed will be:
14,180,000,000,000 /2,000 = 7,090,000,000 currency notes will
need to be printed which is 7,090
million notes (volume) of INR 2000 each.
Bharatiya Reserve Bank Note Mudran Private Limited (BRBNMPL)
is a wholly owned subsidiary of RBI which prints the notes. The process is that
every year RBI puts request (indent) for printing of volume of different
denomination currency notes which then are printed and supplied by BRBNMPL to
RBI which releases it in the economy through banking system. In 2015-16 BRBNMPL
printed 21,195 million currency notes of different denomination out of which 500
rupee notes were 4,291 million and 1000 notes were 977 million against RBI’s
specified requirement of 5,600 and 1,900 millions respectively (see Table
VIII.4 below).
Table VIII.4 shows that total printing
capacity of BRBNPML is around 25,000 million units (notes) per year. For benefit of doubt
let us take 30,000 million units. Now further assume that RBI decides to print
only 2000 denomination currency notes from 9 November 2016 after the announcement, this
means to print 7090 million notes it
will need 7090/30,000 = 0.24 years or about 86 days non-stop printing
without holidays. So the earliest 7,090 million currency notes of 2,000
denomination can be printed is February 2017.
 |
| Source: Reserve Bank of India, Annual Report 2015-16, dated 29 August 2016. Page 90. Accessed online 25 November 2016. Full annual report of RBI is available here Only Currency Management section from which this data is extracted is available here |
However, most likely it will be much after February 2017 because BRBNMPL may not be able to work 86 days without any break. Also look at
the past patterns of printing notes in table VIII.4. It is obvious that in most
recent years the RBI’s printer has not been able to meet the demand (compare
indent and supply numbers).
The other reason is that RBI is not likely to print only
2,000 as it is printing new 500 denomination notes as well, hence the likely period to replace new currency with same value that has been demonetized will be longer than three months.
The plans for 2016-17 shown in table VIII.4 show that RBI wanted to print 16,625 million notes of 100,50,20 and 10 denomination. If these planned printing of smaller denomination notes is stopped to print only 2000 and 500 denomination notes, it will create big difficulties for small traders and consumers who need smaller denomination notes for transactions in cash. If the planned printing of smaller denomination notes is continued then clearly replacement of withdrawn value will be much longer than 3 months. Of course, if the capacity for printing is somehow expanded then this claim is contestable.
The plans for 2016-17 shown in table VIII.4 show that RBI wanted to print 16,625 million notes of 100,50,20 and 10 denomination. If these planned printing of smaller denomination notes is stopped to print only 2000 and 500 denomination notes, it will create big difficulties for small traders and consumers who need smaller denomination notes for transactions in cash. If the planned printing of smaller denomination notes is continued then clearly replacement of withdrawn value will be much longer than 3 months. Of course, if the capacity for printing is somehow expanded then this claim is contestable.
RBI planned to print 5,725 million new 500 denomination and 2,200 million new 1000 denomination notes in 2016-17(see the last column of above table). This plan seems reasonable considering the volume of currency indented in previous years and also does not imply any demonetization plans. The RBI report explicitly
mentions that it had no plans for demonetization until publication of the report. Here is the
direct quote form page 93 Box VIII.1, “The
legal tender status of all the banknotes of these denominations issued earlier which
do not contain these features will remain unchanged.”
So it seems that the government was planning the demonetization so secretly that RBI itself was unaware of the plan. Or that Dr. Raghuram Rajan, who was governor at that time knew about plan in August 2016 but chose not to disclose it in the annual report that he signed. Or the plan to demonetize was prepared after new governor took over on 4 September 2016.
So it seems that the government was planning the demonetization so secretly that RBI itself was unaware of the plan. Or that Dr. Raghuram Rajan, who was governor at that time knew about plan in August 2016 but chose not to disclose it in the annual report that he signed. Or the plan to demonetize was prepared after new governor took over on 4 September 2016.
Fake currency notes
The RBI Annual Report also provides details about counterfeit
notes detected in the banking system. It is seen from following table that there
are more 500 and 1000 counterfeit notes than other denominations.
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| Source: Reserve Bank of India, Annual Report 2015-16, dated 29 August 2016. Page 92. Accessed online 25 November 2016. Full annual report of RBI is available here Only Currency Management section from which this data is extracted is available here |
