Archive for September 3rd, 2012

What does currency usage in India show.. High inflation,black money…??

September 3, 2012

I have always liked this analysis from RBI in its annual report on currency usage in India.

I can’t locate the earlier post which showed how usage of small denomination currency is declining and large denomination is rising in last few years.  The trend seems to be continuing in 2011-12 as well.

Table VIII.1: Banknotes in Circulation (As at end-March)

Denomination

Volume (Million pieces)

Value (Rs billion)

2010

2011

2012

2010

2011

2012

Rs. 2 and 5

7,953

11,116

11,540

29

43

45

 

(14.1)

(17.2)

(16.2)

(0.4)

(0.5)

(0.4)

Rs. 10

18,536

21,288

23,002

185

213

230

(32.8)

(33.0)

(32.2)

(2.4)

(2.3)

(1.9)

Rs. 20

2,341

3,020

3,510

47

60

70

(4.1)

(4.7)

(4.9)

(0.6)

(0.7)

(0.6)

Rs. 50

4,211

3196

3,488

211

160

174

(7.4)

(5.0)

(4.9)

(2.7)

(1.7)

(1.4)

Rs. 100

13,836

14024

14,119

1,384

1,402

1,412

(24.5)

(21.7)

(19.8)

(17.6)

(15.0)

(11.6)

Rs. 500

7,290

8,906

10,256

3,645

4,453

5,128

(12.9)

(13.8)

(14.8)

(46.2)

(47.6)

(48.7)

Rs. 1,000

2,383

3027

3,469

2,382

3,027

3,469

(4.2)

(4.7)

(5.0)

(30.2)

(32.4)

(32.9)

Total

56,549

64,577

69,382

7,883

9,358

10,528

Note: Figures in parentheses represent per cent share in total.
  • The share of Rs 500 and Rs 1000 in currency in circulation is rising over the years
  • Share of earlier high denominations i.e. Rs 100, Rs 50 etc is declining. 
  • One clear factor is high inflation where people demand higher currency notes to purchase items whose prices have risen over the years. Earlier Rs 100 was deemed as enough while going to the market and now  Rs 1000 is needed. So, currency demand is clearly in line with the inflation trends. This is something I am sure most would have observed in their own shopping patterns as well.
  • The other factor which I missed then is black money. Say one has to pay a bribe of Rs 10 lakhs (1 million). This would require 100 bundles of Rs 100 currency notes with each bundle having 100 notes. In case of Rs 1000, this reduces to just 10 such bundles. Typically in a highly corrupt economy which India unfortunately is, one should always see higher demand for higher denomination currency notes to clear the bribery market.

The next q is how can we know empirically which factor is contributing more to this rise of high denomination notes? Is it more inflation or more black money? Or some other factor?

Advertisements

Profile of Justin Lin and primer on new structural economics

September 3, 2012

IMF’s latest Finance and Development (Sep-12) issue is out. As always terrific articles (wish most papers could be as short and precise).

In its people section, we have profile of Justin Lin ex-chief econ of World Bank. The title is ” The Man with the Patience to Cook a Stone”. As always an amazing read.

How did Lin become a top econ? Because of his translation skills:

(more…)


%d bloggers like this: