Growth in Currency in Circulation Slows to 3.7%, Reflecting RBI’s Withdrawal of Rs 2,000 Notes

Currency in circulation saw a slowdown in growth, dropping to 3.7 percent for the week ending February 9 from 8.2 percent a year earlier, largely influenced by the Reserve Bank of India’s decision to phase out Rs 2,000 banknotes. Currency in circulation (CiC) encompasses notes and coins actively used, while currency with the public is calculated as notes and coins in circulation minus cash held by banks. The RBI noted that commercial banks experienced a surge in deposits in January, also attributed to the withdrawal of Rs 2,000 currency notes. Reserve Money (RM) growth, as per RBI data, decelerated to 5.8 percent as of February 9, 2024, from 11.2 percent a year prior (8.8 percent adjusted for the initial impact of changes in the Cash Reserve Ratio). CiC, the largest component of RM, showed a slowdown in growth to 3.7 percent from 8.2 percent a year ago, reflective of the withdrawal of Rs 2,000 banknotes, according to the RBI. The RBI announced the withdrawal of Rs 2,000 denomination banknotes from circulation on May 19, 2023. As of January 31, nearly 97.5 percent of the Rs 2,000 banknotes had been returned to the banking system, with only about Rs 8,897 crore worth of such notes still held by the public. At the announcement of the withdrawal, the total value of Rs 2,000 banknotes in circulation was Rs 3.56 lakh crore. Initially, the public and entities holding such notes were directed to exchange or deposit them in bank accounts by September 30, 2023, with an extension granted until October 7, 2023. Deposit and exchange services ceased at bank branches on October 7, 2023. Since October 8, 2023, individuals have been given the option of either exchanging the currency or having the equivalent sum credited to their bank accounts at the 19 offices of the RBI. The introduction of Rs 2,000 banknotes followed the demonetization of the then-existing Rs 1,000 and Rs 500 banknotes in November 2016.