The empirical study on modelling currency demand said the average value of a currency note (for denominations of Rs 10 and above) increased nearly eight-fold while there was a 18-fold rise in the price level.
The average value of a currency note did not keep pace with inflation in the past four decades, according to a Reserve Bank of India study.
The empirical study on modelling currency demand said the average value of a currency note (for denominations of Rs 10 and above) increased nearly eight-fold while there was a 18-fold rise in the price level.
The study referred to the significant change in the composition of currency circulation across denominations during the past four decades.
“The evolving denominational distribution of currency notes, even with the introduction of higher denomination notes (Rs 500 and Rs 1,000) was not commensurate with the underlying demand for the various denominations necessitated by the inflation path.
“The implication is that a consumer would need to carry a much larger number of currency notes than was the case earlier to purchase the same volume of goods and services,” said the study. Since inflation rate exceeded the growth in the average value of a note, there has been a decline in the average real value of a currency note of Rs 10 and above (Base: 1971-72) from Rs 21.6 in 1971-72 to Rs 5.8 in 1997-98 before a modest rise to Rs 8.9 in 2008-09. There could be several different factors behind such trends in the denominational pattern of currency circulation, said the study co-authored by D.M. Nachane, A. B. Chakraborty, A. K. Mitra and Sanjib Bordoloi.
Factors
First, note printing in India was dependent on the production capacity of the two government presses at Nashik and Dewas till the setting up of two more note presses in Mysore and Salboni in 1995-96. As such, there were supply constraints on meeting the growing demand of notes, which resulted in importing notes in the 1990s.
Second, the use of alternative payment channels such as cheques, credit/debit cards and internet banking has been spreading over the years. These are not only more efficient instruments than paper currency but also leave paper/electronic trails facilitating tax audit. Third, the possibility of use of high denomination notes for black economy transactions and the demonetisation of Rs 1,000 and higher denomination notes in 1978 to curb hoarding/circulation of black money might have had a role to play in postponing the introduction of new higher denomination notes for some time.
Keywords: Value of currency note, RBI study, inflation, currency demand, rupee, denominational pattern of currency circulation
Comments:
Interesting topic.
I suspect that our Indian Money has any value for the last 5 years of
UPA regime?
From May, 22 2004 onwards, they have increased Petrol prices (15
times) i.e. 120% for making money from taxes( they cannot allow
permission for exploration to find petrol from our land or promote to
source any other energy sources).
RBI Governor is trying hard to decrease the inflation and for this he
had increased repo rate (9 times) to control the inflation and is
making meeting around the world for his efforts.
As regards our Rupee we find a new logo for long research but the
value of our rupee is just like paper now like school students bag
with many books. If value of rupee go like our tailors have to make
additional pockets for our people to keep the money.
I saw in USA the value of ONE Dollor and buy anything necessary but in
India we will get one candy.
My humble request is our Government/RBI Governor will take little
effort to improve our Rupee value and save trees life.
The value of the Rupee goes down as the Inflation rises so the best
way to control money value to check inflation rate.Govt. should
curtail their expenses which automatically leads to allow subsidy on
petrol, diesel & gas which is the main cause for inflation. They
should check price of petrol,diesel & gas. Secondly agriculture &
edible items should not be traded in MCX so the control on the prices
should remain in their hands & not companies.
I feel RBI should introduce plastic money with higher denomination so
the average life of the currencies also goes up & we can preserve the
environment also by saving the trees.Naturally the problem of
duplicate notes will be solved.
Other way to curtail the price is mass production. Govt. should give
attractive package like cheap electricity,cheap transport, low excise
duty. Vat. Service tax & other taxes to our all industries. Higher
production leads to lower the prices, so the purchasing power will be
improved & that turns to Rupee gains.
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