Technoglitch
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Writing in this newspaper last month, economist Ajit Ranade made a case for scrapping Rs.1,000 and Rs.500 notes. Citing research by former Standard Chartered Plc chief executive Peter Sands, Ranade argued large denomination notes are highly likely to be used for illegal activities and not so much as a medium of ordinary transaction, and elimination of such notes can go a long way in cutting the stocks of such funds (popularly known as black money in India).
A few days ago, the European Central Bank (ECB) announced that it was considering demonetization of the €500 note, while the former US treasury secretary Lawrence Summers wrote an op-ed in The Washington Post asking for a stop to further issuance of the $100 note.
The reasons cited were similar—that such notes are too large to be used widely in day-to-day transactions, and instead end up serving the purposes of terrorists, tax evaders, money launderers and other criminals.
While Ranade makes valid arguments, what they fail to take into consideration is the cost of scrapping these high-value notes. According to data put out by the Reserve Bank of India (RBI), the share of Rs.1,000 notes in the stock of currency in circulation at the end of financial year 2014-15 was a whopping 39%, with Rs.500 notes accounting for a further 45% of currency stock.
As figure 1 shows, the share of large value notes has only been increasing over the years. In the year 2000, for example, before the Rs.1,000 note was reintroduced (it had been demonetized in 1978), Rs.500 note accounted for only about 30% of the total currency in circulation. By 2015, large-value notes (of face value more than Rs.100) accounted for more than 84% of the money in circulation.
Scrapping Rs500, Rs1000 notes a costly idea - Livemint
A few days ago, the European Central Bank (ECB) announced that it was considering demonetization of the €500 note, while the former US treasury secretary Lawrence Summers wrote an op-ed in The Washington Post asking for a stop to further issuance of the $100 note.
The reasons cited were similar—that such notes are too large to be used widely in day-to-day transactions, and instead end up serving the purposes of terrorists, tax evaders, money launderers and other criminals.
While Ranade makes valid arguments, what they fail to take into consideration is the cost of scrapping these high-value notes. According to data put out by the Reserve Bank of India (RBI), the share of Rs.1,000 notes in the stock of currency in circulation at the end of financial year 2014-15 was a whopping 39%, with Rs.500 notes accounting for a further 45% of currency stock.
As figure 1 shows, the share of large value notes has only been increasing over the years. In the year 2000, for example, before the Rs.1,000 note was reintroduced (it had been demonetized in 1978), Rs.500 note accounted for only about 30% of the total currency in circulation. By 2015, large-value notes (of face value more than Rs.100) accounted for more than 84% of the money in circulation.
Scrapping Rs500, Rs1000 notes a costly idea - Livemint
