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The precautionary demand for cash surged in the economy in 2020-21 due to the Covid-19 pandemic, the Reserve Bank of India said in its Annual Report 2020-21.
“The year witnessed a higher than average increase in banknotes in circulation primarily due to precautionary holding of cash by the public induced by the Covid-19 pandemic, and its prolonged continuance,” said the report, which was released on Thursday.
The value and volume of banknotes in circulation increased by 16.8 per cent and 7.2 per cent, respectively, during 2020-21 as against an increase of 14.7 per cent and 6.6 per cent, respectively, witnessed during 2019-20.
“Concerted efforts were made to ensure that Currency Chests remain adequately stocked with all denominations of banknotes in order to maintain timely supply of fresh banknotes across the country," it further said.
Currency in circulation has been increasing along with the rise in digital payments. The volume of banknotes in circulation has been rising and stood at 12,436.7 crore pieces as on March 31, 2021 versus 11,597.7 crore pieces in 2019-20.
Significantly, the volume and value of ₹2,000 notes in the currency in circulation declined while that of ₹500 notes increased.
In 2020-21, the share of ₹2,000 currency notes of the overall currency in circulation in terms of volume fell to 2 per cent from 2.4 per cent in 2019-20 and 3 per cent in 2018-19. In value terms, it fell to 17.3 per cent in 2020-21 from 22.6 per cent in 2019-20.
In contrast, the share of ₹500 currency notes in terms of volume in the overall currency in circulation rose to 31.1 per cent in 2020-21 from 25.4 per cent in 2019-20. In value terms it increased to 68.4 per cent in 2020-21 from 60.8 per cent in 2019-20.
“In value terms, the share of ₹500 and ₹2,000 banknotes together accounted for 85.7 per cent of the total value of banknotes in circulation as on March 31, 2021, as against 83.4 per cent as on March 31, 2020,” the report said.
In volume terms, ₹500 denomination constituted the highest share at 31.1 per cent followed by ₹10 denomination banknotes, which constituted 23.6 per cent of the total banknotes in circulation as on March 31, 2021, it further said.
The report said the RBI is in the process of introducing varnished banknotes in ₹100 denomination on a field trial basis with a view to elongate the life of the banknote.
Outlining its agenda for 2021-22, the report said it will focus on procurement of new shredding and briquetting systems, augmentation of disposal of soiled notes; and establishment of a state-of-the-art facility for conducting cutting edge research to test robustness of security features of currency notes and introduction of new security features.
“Going ahead, the Reserve Bank’s endeavour would be to enhance the lifespan of banknotes, automate the handling and processing of notes, and rationalise the available infrastructure for maximum utilisation,” it said.
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