Currency

Currency in Circulation Sees 1% Weekly Upswing


The Reserve Bank of India (RBI) has announced a 1% weekly increase in currency in circulation, reaching Rs 34.92 lakh crore as of March 8, 2023. This latest figure from the central bank comes alongside a reported 0.5% contraction in overall reserve money, now standing at Rs 45.41 lakh crore for the same period.

Year-over-Year Comparison

While currency in circulation rose by a modest 3.7% compared to the same period last year, this growth is significantly lower than the 8.2% increase observed in the previous year. The current fiscal year has seen a 3.4% expansion in currency circulation and a 3.5% increase in reserve money thus far.

As of March 7th, 2024, the currency in circulation was at 3.3% year-on-year.

Historical Context: Withdrawal of Rs 2,000 Banknotes

The recent deceleration in currency in circulation growth can be attributed to the Reserve Bank of India’s decision to withdraw the Rs 2,000 denomination banknotes from circulation. Introduced in November 2016 following the demonetization of Rs 1,000 and Rs 500 notes, the Rs 2,000 banknotes were aimed at meeting the liquidity requirements at that time.

However, on May 19, 2023, the RBI announced the withdrawal of these high-value notes. The public was initially given a deadline of September 30, 2023, later extended to October 7, 2023, to either exchange or deposit the Rs 2,000 notes in bank accounts. As of January 31, 2024, almost 97.5% of the Rs 2,000 banknotes, worth Rs 3.56 lakh crore, had been returned to the banking system, leaving only about Rs 8,897 crore worth of such notes with the public.

Post the October 7, 2023 deadline, individuals could exchange the remaining Rs 2,000 notes or have the equivalent sum credited to their bank accounts at the 19 offices of the RBI across the country.

Monetary Policy Implications

The fluctuations in currency circulation and reserve money hold implications for the central bank’s monetary policy stance. An increase in currency in circulation typically signals higher liquidity in the economy, which can influence factors such as inflation and economic growth.

The rise in currency circulation is a positive indicator of economic activity. However, the RBI needs to strike a careful balance between maintaining sufficient liquidity and managing inflationary pressures.

The Way Forward

As the Indian economy continues to navigate the post-pandemic recovery phase, the RBI’s management of currency circulation and reserve money will play a crucial role in maintaining financial stability and supporting economic growth. Market participants and analysts closely monitor subsequent data releases and policy announcements from the central bank.

This is because the RBI’s ability to strike the right balance between liquidity provision and inflation control plays a big part in the coming months and years. Also, effective monetary policy management can pave the way for sustainable economic progress.

 

Join our WhatsApp and Telegram Community to Get Regular Top Tech Updates

Whatsapp Icon
Telegram Icon





Source link

Leave a Response