1.3.18

Currency in Circulation Back to Near Pre-DeMo Levels

Nearly 15 months after the government took the bold and unusual step to withdraw high-denomination bills to curb the expansion of a parallel economy, the value of currency notes in circulation in India has reached the ‘pre-demonetisation’ level, likely indicating a revival in the broader economy.

The latest central bank data shows that the total currency in circulation is at ₹17.82 lakh crore, as on February 23. This amounts to about 99.17% of the ₹17.97-lakh-crore worth of currency in the broader markets on November 4, 2016. The currency swap, because of which old ₹500 and ₹1,000 bills ceased to be legal tenders overnight, was announced by Prime Minister Narendra Modi on November 8, 2016.

Although economists are still not certain about the recent surge in the use of currency, they tend to agree that demonetisation has facilitated the digitisation of transactions, bringing more of them within the formal banking system. Some economists attribute the rise in cash to a revival in economic activity, which is evident in the pace of broader economic expansion.

On Wednesday, India’s rate of economic expansion accelerated to 7.2% in the three months to December, registering the fastest pace of growth in five quarters. Currency in circulation contracted to ₹8.93 lakh crore — or half the ‘pre-demonetisation’ levels — on December 30, 2016, that was set as the last day to surrender the banned currency notes.

No comments: