Impact of Rs 2,000 notes withdrawal: Currency-in-circulation growth dips to 3.7% in Feburary

The growth in currency in circulation decelerated to 3.7 per cent for the week ended February 9 from 8.2 per cent a year ago, reflecting the impact of the decision of the Reserve Bank of India (RBI) to withdraw Rs 2,000 banknotes. Currency-in-circulation (CiC) refers to notes and coins in circulation, while currency with the public comprises notes and coins in circulation minus cash with banks. According to the RBI, commercial banks have reported double-digit growth in deposits in January, which too can be attributed to the withdrawal of Rs 2,000 currency notes.

The growth of Reserve Money (RM), as per the RBI data, decelerated to 5.8 per cent as on February 9, 2024, from 11.2 per cent a year ago (8.8 per cent adjusted for the first-round impact of change in Cash Reserve Ratio (CRR). Components of RM include CiC, banks' deposits in RBI and other deposits with the central bank.

The growth in CiC , the largest component of RM, decelerated to 3.7 per cent from 8.2 per cent a year ago, reflecting the withdrawal of Rs 2,000 banknotes, according to the RBI. On May 19, 2023, RBI announced the withdrawal of Rs 2,000 denomination banknotes from circulation. As on January 31, nearly 97.5 per cent of the Rs 2,000 banknotes were returned to the banking system, and only about Rs 8,897 crore worth of such notes are still with the public.

The total value of Rs 2,000 banknotes in circulation was Rs 3.56 lakh crore at the close of business on May 19, 2023, when the withdrawal of Rs 2,000 banknotes was announced. Public and entities holding such notes were initially asked to either exchange or deposit them in bank accounts by September 30, 2023. The deadline was later extended to October 7, 2023. Deposit and exchange services at bank branches were discontinued on October 7, 2023.

Starting October 8, 2023 individuals have been provided with the choice of either exchanging the currency or having the equivalent sum credited to their bank accounts at the 19 offices of RBI.
The Rs 2,000 banknotes were introduced in November 2016, following the demonetisation of the then-prevailing Rs 1,000 and Rs 500 banknotes.