Where is the currency going? Why are ATMs dry?

The cash crunch is back. There are again news of bank branches/ATMs showing no cash option. Though, as cash moved into deposits during the demon, banking system liquidity is high. It is all so ironical.

Coming back to cah crunch, Sucheta Dalal wonders what is going on?

Supplying cash directly from the printing presses is an expensive business and the RBI has to pay for security as well. So, such direct lifting of currency has stopped sometime after 31st December. The RBI decided that the system was sufficiently remonetised and went back to its slow, currency supply system. 

 

However, ATMs began to run dry immediately after, even in metropolitan cities. Officially, all restrictions on cash withdrawals ended on 31st March as per an RBI notification. However, the central bank seems to have goofed up on assessing the actual currency requirement and its own ability to supply it.

 

Public anger is directed at banks.  Banks have been equally callous and are attempting to impose costs on cash withdrawal, as they are running short of cash. Here are some facts about why we are running short on cash:

1. As part of the demonetisation exercise, the RBI printed Rs 2000 denomination notes at its printing presses in Mysuru, with the bright idea of faster remonetisation. However, this backfired badly, since the government presses could not produce enough of Rs500 notes. When this led to a furore, the RBI ordered a stop to printing of Rs2000 denomination notes and the Mysuru presses were also told to switch o producing Rs500 notes. 

2. India’s currency requirement today is in the region on Rs19 lakh crore of cash currency. 

3. Of this, the printing of Rs2,000 denomination has almost stopped at just 3.5 billion (350 crore) pieces of currency, valued at Rs7 lakh crore.

4. Meanwhile, there are only six billion pieces of Rs500 denomination currency printed, with a value of Rs3 lakh crore. 

5. If one includes the stock of Rs100 denomination currency in the country, the total stock is Rs13.5 lakh crore. 

6. Bankers estimate the shortfall of currency is about Rs5.5 lakh crore of 10 billion (1,000 crore) pieces. 

7. This means that unless the government or the Prime Minister gets into the act and demands a crank up of currency printing and supply, we are destined to suffer currency shortages for the next six to eight months or even a year. This is what sober experts have been predicting late last year.

Just all over the place.

A few days back, a trio of esteemed economists praised RBI for achieving the remonetisation fairly quickly. It was surprising to read the piece given the recent facts.