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₹500 NOTE – Pivot note of the currency in circulation

On 8/11/2016 around 8.30 PM, our Prime Minister made a theatrical announcement through the television channels that:

“To break the grip of corruption and black money, we have decided that the five hundred rupee and thousand rupee currency notes presently in use will no longer be legal tender from midnight tonight, that is 8th November 2016. This means that these notes will not be acceptable for transactions from midnight onwards. The five hundred and thousand rupee notes hoarded by anti-national and anti-social elements will become just worthless pieces of paper. The rights and the interests of honest, hard-working people will be fully protected. Let me assure you that notes of one hundred, fifty, twenty, ten, five, two and one rupee and all coins will remain legal tender and will not be affected.”

[Click  Then go to 8th November 2016 and look for "Text of Prime Minister’s address to the Nation"]

After two days of this announcement, I exchanged couple of ₹500 & ₹1000 notes at a bank counter. In return, I received two new pink ₹2000 notes. When I tried to exchange these new pink notes for change, I realised that there was hardly change for that and people are holding the lower denomination notes as a precious commodity. The next lower denomination available for change is ₹100 note. That means you need 20 nos. of ₹100 note to get change for the new ₹2000 note. Due to scarcity of change, I soon realised that the lower denominations notes in the system are not able to meet the liquidity demand.

This was the reason for me to visit the website of  Reserve Bank of India (RBI) to find the distribution of each denomination notes existing in the system. Each year, RBI, in its Annual Report publishes the statistics of the total currency in circulation by March end; and information is provided denomination-wise. Also, every week RBI publishes the total currency in circulation. However, this data is limited to the total currency in circulation and not sharing denomination-wise distribution as in the annual report. The table below is reproduced from the RBI Annual Report of 2015-16.

Source: RBI Annual Report 2015-16

From the above table, it can be seen that as on 31/03/2016, the total currency in circulation was ₹16415 Billion, ie, ₹16.415 lakh crores. Out of this ₹16.415 lakh crores, the value of ₹500 notes is alone is 47.8% and ₹1000 notes is 38.5%. Both these demonetized notes together constitute of 86.4% of the total currency in circulation! That means the value of the total demonetized notes is ₹14.18 lakh crores!

The lower denomination notes constitutes remaining 13.6% of the value, amounting to, just ₹2.235 lakh crores. If we look at the distribution of these notes by denomination wise, we can see that ₹100 notes is 9.6%, ₹50 notes is 1.2%, ₹20 notes is 0.6%, ₹10 notes is 1.9% and ₹2 & ₹5 notes together is 0.3%. The coins up to ₹10 constitute just another ₹0.218 lakh crores (1.3%) as of 31/03/2016. So all together Government & RBI decided to spare just ₹2.453 lakh crores and declared rest currency notes of high denomination worth ₹14.18 lakh crores as non-legal tender with strict riders for exchange at certain outlets like petrol pumps, government hospital medical stores, etc. 

The pie chart below represents the distribution of the various denominations. 

Look at the above pie chart. The blue pie represents the value of ₹500 note, which occupies almost half of the space of value of currency in circulation. Why? This ₹500 note is having the highest mobility in the notes in circulation which ensures proper liquidity needed for the cash transactions in our rural and retail economy. It represents the daily/couple of days wages of a rural labourer. It fits perfectly into your wallet to meet most of your daily expenses. There was no dearth of change for this ₹500 note and there is a harmony between ₹500 note and the remaining lower denominations.  I don’t know what name economists call this unique type of denomination, which occupies the central role. I call it as the pivot note or fulcrum note of the total currency in circulation. If you look at the monetary value of this ₹500 note, you can see the 5 numbers of next lower denomination ₹100 can replace it. Similarly, the next higher denomination of ₹1000 can be replaced with 2 nos of ₹500 note. If you look at the first table again, you can see that volume-wise, ₹100 notes is 15778 million pieces while ₹500 is 15707 million pieces. There existed a perfect equilibrium between these denominations and hence we never faced any change crunch. The currency management wing of RBI meticulously used to determine the percentage of each denomination based on the demand in the system using very complex mathematical formula and statistical principles. If any of you are looking for the literature on this aspect for your research needs, there are enough working papers available in the website of RBI.

From the above table you can see that there was a steady increase of ₹500 note from 2013-14 (44.4%) to 2014-15 (46.0%) and further to 2015-16 (47.8%). At this rate of growth, this ₹500 note would have touched mostly the 50% of the value of the total currency in circulation by the end of this financial year, if there was no demonetisation. 

This ₹500 note now occupies the same position of the ₹100 note occupied between 1977-78 and 2000-2001. The graph below will show you how the position of the ₹100 note was slowly replaced by ₹500 note over the years. You can see that in the year 2003-04, both these notes reached same percentage (38%) of the value of the total currency in circulation. Thereafter, ₹500 note steadily replaced the position occupied by the ₹100 note. During the last couple of years, ₹500 note occupied the pivotal note in the total currency in circulation. After a decade or two, the ₹1000 note may replace this ₹500 note and will become the pivotal note.

Under the leadership of former Prime Minister Dr. Manmohan Singh, our GDP had grown around 3 times during the last 10 years. This was despite having global economic crisis. But we seldom acknowledge this fact. We should  thank Dr. Manmohan Singh as he unleashed the economic revolution with that landmark budget in 1991 opening up the Indian economy and ushering prosperity for the nation. Ironically, the present Prime Minister Narendra Modi, perhaps more than any other contemporary politician, has been a direct beneficiary of the forces unleashed by Singh in 1991. Instead of acknowledging this reality, the present Prime Minister and his party has always been trying to sell a narrative that before Modiji there was no progress happening in India thereby ridiculing the former Prime Minister quite often in past and present.

So as your economy is growing, you need more total currency in circulation (actually it is a more complicated estimation done by monetary economics experts considering various factors, but for the simplicity of understanding let us take one single factor for the time being) in the system. This will help to maintain the velocity and liquidity of the cash needed in a heavily cash based rural and retail economy of India. This is the reason why the the total currency in circulation has increased over the years even after the present regime took charge in May 2014. Look at the graph to see how it has increased over the past 3 years!

We can see from the above graph that the present Government too increased the total currency in circulation all along and there was no attempt to bridle it. But soon after the demonetisation, many in the media made tall claims that Government was ruminating about this great idea of demonetisation for quite a long time with dates varying from an year to 6 months according to the reporter's whims and fancy. Our Finance Minster too has gone vocal in the media and showered congratulatory praise and credit to the Prime Minister and Government for this demonetisation as a huge "surgical strike" on black money. Yeah, this is the new lexicon now being used for the spectacles unleashed. He also claimed that the entire exercise was meticulously planned over more than 10 months and kept it under wraps at the high echelons of decision making as an utmost secret like a nuclear test. Of course, the spectacle of this magnitude has really taken everyone by surprise.

In the beginning days of demonetisation, our Media, neither electronic nor print provide any insights to the public about the huge amount of the currency in circulation demonetized. Instead, they were so much excited about this spectacle and hailed it as some bold historical step. All their energy and time were devoted to exhort the public to fall in line with Government with catch phrases to praise this as once in a life time chance for nation building. They failed to ask the Government any substantive questions even when the entire data was in public domain. None of them asked, if the Government was planning demonetisation at least for 6 months in advance, why did RBI push lakhs of crores of demonetised currency into the system in the preceding months before demonetisation? Just to demonetise it later?

The latest information before demonetisation on the value of the currency in circulation is available from the Reserve Money Weekly Statement of the RBI dated 4/11/2016 (4 days before demonetization) and it is ₹17.975 Lakh crores! That is a jump of value of currency from ₹16.415 lakh crores on 31/03/2016 to ₹17.975 Lakh crores on 4/11/16, ie, a jump of ₹1.56 lakh crores in last 7 months, which is almost equivalent to an annual increase of 16.3%. Kindly note that the value of currency increase from 2014-15 to 2015-16 was just 14.9%. So if this was a long term plan, why RBI printed and circulated this excess ₹1.56 lakh crores in the last 7 months into circulation? No question. No answer. It is a perfect world of cheerleaders!

Even if we assume the ₹500 & ₹1000 notes increased in the same ratio of 86.4% (definitely it will be more than this if you look at the trend of high denominations increasing over years, but for the time being let’s assume it increased in the same ratio) during the past 7 months, it value will be increased from ₹14.18 lakh crores to ₹15.53 lakh crores!

So far we discussed about the value of the ₹500 & ₹1000 notes demonetized. It is very important to look at the sheer volume of these notes in circulation too. If we go back to the first table shared here, the number of ₹500 notes were 15707 million and ₹1000 notes were 6326 million as on 31/12/2016. All together, both these notes 22033 million numbers. Then we have to consider the additional number of ₹500 & ₹1000 notes pushed into circulation before demonetisation too. If we consider them, in the same ratio of distribution, the total number of high denomination notes demonetized will touch a whopping volume of 24000 million pieces.

Is it an easy task to replace the 24000 million notes in limited time or how much time it may take to print and replace? If we look at the past 3 years record of the RBI & SPMCIL Printing Presses, it can be seen that this quantity of 24000 million notes are equal to the annual turn over all our 4 printing presses together! If that being the case, when will Government & RBI meet the target of replacing the demonetized notes with new notes????

My next blog post will dissect the issue in detail. 


  1. Excellent Analysis. These questions have to be asked by our Media and Financial experts.

  2. Too good hates off nice work keep writing God bless you

  3. Minute details captured. Amazing! Looking forward for more. It will be great if you can have a Facebook account.

  4. Sir, Very good and detailed analysis to the point.. Opposition and media should be innovative and detailed oriented while asking questions.. I must say they can learn lot from you.. Hats Off!!!

  5. James, very good analysis, waiting for your next article. God bless.

  6. James, very good analysis, waiting for your next article. God bless.

  7. Correct data, wrong analysis. Author mentions increase in GDP, but does not talk about "Wealth effect". Inflated assets led to artificial rise in GDP. How will you explain high inflation & high joblessness in rising GDP. How slowly fiat currency was leading to bubble in unproductive sectors(real estate). How "₹100" were getting less as compared to "₹500 or 1000" note, creating more currency in market than sum total of all Goods & services, causing inflation. Even after 1991 reforms, licence raj was replaced by inspector raj, lots of red tapism. Increased dependence on imports, devaluation of rupee from ₹47/$ to 64/$ when $ almost crashed. You need to delve deep to understand rot. There are many more reasons but......

  8. For a better perpective, u will need a break up of currency increase frm Mar16 to Nov 16. How much of 500 nd 1000 printing done even after planning nd why? be askd to govt

  9. Sir,
    Notes to be replaced _ 24000 Million not billion.

  10. Sir,
    Notes to be replaced _ 24000 Million not billion.

    1. Thank you.. Corrections done. I just typed and posted it as I was pre-occupied with some urgent personal matters. I read the blog today morning and done the corrections

    2. That amount of notes are never going to be replaced!

  11. Amazing Research. Excellent way of expressing the facts. Well Done.. Can't wait for your next blog.. May God Bless You..

  12. James, great job. Since you're data crunching, I don't. We both are talking same things.
    What I want you to do.
    Get the following data.
    Value of the following (in value & pieces)
    A) Average daily reciepts
    B) Less Average daily payment
    C) Less Average daily soiled note distruction
    D) Add Average daily note printing
    The total will show surplus or deficit of currency requirements.
    Now match this with capacity of Note Mudran Press at Nashik, Mysore & Bhopal
    Please note post 8th November A) is redundant as their is no legal tender currency receipts but SBNs only.
    This data will at by when situation be. Normal. A few weeks/a fortnight/month/31st March/30th June/31st July, 2017(my prediction)
    Do this. Seriously before data goes off RBI site. 😉

  13. [18/12 09:46] ⚽🇵🇾 🙏😇🌄: The Moot question is that the Real Estate Business commands a 40% Black and 60% White across the length and breadth of India and the average price for A 1BHK is not less than a 1Cr. the builders cartel have been systematically controlling the market and politicians and the municipal and states to ransom by charging and enjoying a 600% profit for dog years vis a vis a construction cost which is 20% of the actual gross sale to MIG / LIG without a shred of
    [18/12 09:52] ⚽🇵🇾 🙏😇🌄: emotion. Even SRA and Redevelopment projects are rife with corruption. No govt has been able countermand this menace. Demonitisation will make a dent in this activity at least in the future with the benami bill and minimum holdings of property so corrections are required to discipline the fiscal approach of the MIG/ LIG so they can survive the onslought of rich land lobbies. 🙏

  14. When the eminent financial analysts and journalists who interpret fiscal and monetary policies seem to have sold their souls to legitimise the acts of commission and omission associated with the demonetisation misadventure, it is indeed commendable that a civil engineer has taken the trouble of data mining and number crunching. James Wilson has shown that it is necessary to look into the evidence to understand why and how the NPAs of the banks are being attempted to be offset by pumping more currency into the system through this process. We need to see the big picture of how the currency stock and flow in the economy during 2016 and especially during the period of the second quarter behaved, including the post demonetisation period to give the false impression that the black money has actually been forced to come out. Let us hope that the situation will improve in the coming months and that all sections of the society will perform their roles and responsibilities with passion, commitment, transparency and accountability.

  15. Well done bro James - keep up the work!(Psalms 91:7-8)

  16. James, Looking forward to your next blog post ! I tried my best to understand,how govt failed to keep adequate stock of new Notes ( especially that of 500 Note)before demonetization,but I failed.

    Citizens plan their children's b,day parties more meticulously ! Was it sheer inefficiency? Was it due to contempt towards People's class and their suffering?Intentional with some secret purpose? Hope you will help with some answers in your next blog.

  17. Really deep analysis..Kudos to you for this work.. Waiting for your new post...

  18. Good one sir, let the media, press guys take this up against them

  19. Glad someone is making sense..

  20. Please correct date in below para, it should be 31/3/2016.....
    "and ₹1000 notes were 6326 million as on 31/12/2016. All together, both these notes 22033 million"

    Great work..!!!
    Explains in detail so that a layman like me can understand.

  21. Waiting for more from you.

  22. You are a stooge of congress a crony capitalism.You ought know in ten years of UPA govt new currency worth 20lakh crores distributed by govt to hide the corruption done by cash.12 lakh crores corruption money went to sonia gandhi by bribery in all scams.Govt of modi when get aware of the plunder he wanted to dug out the money but failed as it was holed in big notes.There was no option except demonetisation.Now these printed notes comes back to banks by many illegal ways.Suppose 16lakh crores comes back then govt will get 4 lakh crores as taxes.All bank deposits will be scrutinized and any excess deposit Will be taxed.Those who cant exchange like congress TMC DMK NCP AAP Nd Hurriyat will lose lakhs of crores.Apart from genuine notes India was flooded with FICN from Pakistan through these parties who buyed votes illegally.Modijee done right by devastating the black money parties.

  23. Great Analysis james.After you are done with Demon &Remon issues,You may look in to The whole Gamut of Black Money.As per Modi himself 90% Of BM Is abroad.As per some analysis only 6% of BM Is in cash.Then we need to look at Round Tripping of BM through Mauritius,Singapore etc by way of P-Notes(FII)Route.Also furniture research need to be done on List of Names in PANAMA PAPERS,HSBC PAPERS And names from Germany.What action Govts have Iniciated against those Names.We may also look at Outflow of BM,By way of Relaxed Rules for Foreign Remittance to 2.5lack USD Per Head,Per Trip.I was given to Huge Racket is Running in Gujarat using this scheme.

    Oh That's Lot of Research I suppose.I am working on the above and will share Info


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