Demonetisation update 2: re-issue of currency notes

A good friend alerted me to this link about the Government of India eventually re-issuing all the high denomination (HD) notes. So, what was the point of the exercise, after all?

The eventual re-issue of  HD notes does not minimise the effort undertaken now. Basically, with all the previous de-monetisation exercises, this too is still valid. The de-monetisation of existing currency notes is a reality. So, the stock is being made worthless (subject to all the limits, etc.). So, that exercise stands.

In future, the flow will be limited as per what the PM said in his speech on Nov. 8:

From time to time, based on currency needs, the Reserve Bank with the approval of the Central Government brings out new notes of higher value. In 2014, the Reserve Bank sent a recommendation for issue of five thousand and ten thousand rupee notes. After careful consideration, this was not accepted. Now as part of this exercise, RBI’s recommendation to issue two thousand rupee notes has been accepted. New notes of five hundred rupees and two thousand rupees, with completely new design will be introduced. Based on past experience, the Reserve Bank will hereafter make arrangements to limit the share of high denomination notes in the total currency in circulation.

Perhaps, the Government of India thinks that we are not ready to just focus on the total elimination of High Denomination notes. In a sense, they are moving slowly towards that goal. They have put an end to the 5000, 10000 rupee notes. See the extract from the PM’s speech above.

Perhaps, it makes sense to wait for another few years for the 1000, 2000 rupee notes. The Government has taken many steps in recent years to reduce cash dependence. They may be ready to eliminate high denominates once banking penetration improves and stabilises.

In the meantime, India can do what Singapore does: if you want high denomination notes, you have to notify the bank, give a request in writing and do it. It is not freely circulated. I think that is what they are moving towards, as an intermediate step.


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