As 2000-rupee note retires, currency in circulation drops Rs 1.54 lakh cr.

As of July 28, there were significantly fewer 2,000-rupee banknotes in circulation as a result of the exercise to eliminate them. The elimination of the Rs 2,000 currency may not be fully to blame for the decline, as a similar mid-year dropping pattern has been observed in prior years.

However, this year’s decline is significantly more than what was observed in prior years, and this is mostly due to the elimination of Rs 2,000 notes from circulation.

Earlier, between May 20 and July 29, 2022, the total amount of cash in circulation decreased by around Rs 41,000 crore. The decline was also minor in 2021, amounting to Rs 17,000 crore between May 21 and July 30.

Thus, the decline of the current year from May to July was 4.4% rather than 1.2% and 0.6% in 2022 and 2021, respectively.

When the withdrawal of the nation’s largest denomination was announced on May 19, the total amount of currency in circulation dropped from Rs 34.78 lakh crore to Rs 33.24 lakh crore by July 28.

As a result, according to the most recent data from the RBI on Friday, currency in circulation—other than cash held by banks—also decreased by Rs 1.29 lakh crore, from Rs 33.66 lakh crore as of May 5 to Rs 32.36 lakh crore as of July 14.

The central bank provided an update on the situation on Tuesday, confirming that only 8.2% of the pink notes, totaling 3.14 lakh crore or Rs 2,000 billion, are still in circulation. Sep 30 is the last day to deposit or exchange notes worth Rs 2,000.

Only 13% of the Rs 3.14 lakh crore recovered has been converted into other denominations, with 87% being deposited with banks. Separately, according to RBI data, time deposits with banks rose from Rs 171 trillion on May 5 to Rs 175 trillion on July 14.

In the meantime, the RBI highlighted in its monthly bulletin that the removal of Rs 2,000 notes from circulation caused growth in currency in circulation, the largest component of reserve money, to slow to 4.4% year over year from 8%.

The elimination of the 2,000 rupee note was blamed by the central bank for the drop in CIC growth.

As of June 30, the growth of the money supply (M3), which includes bank deposits, was greater at 11.3% (y-o-y) than it was at 8.9% during the same time last year. Deposits made overall at banks grew by 12.4%. The ratio of currency to total deposits decreased due to the return of Rs 2,000 notes, and as a result, the money multiplier increased, the central bank noted.

Analysts in the banking sector predicted that aside from a noticeable decline in the amount of money in circulation, pressure on deposit rates would also lessen as a result of the withdrawal of the denomination following the rise in deposits.