- Business, economy

Currency Dilemma: Illusion or Confusion

Dr. Kumar Bijoy

Government of India is continuously talking about Digital India which will be Cashless, Paperless and Faceless along with other features. Digital Payment is one of the most important tool on this journey of Digital India. However, a closer look reveals the confusing state of Indian Government. On August 24th2017, Reserve Bank of India launched Rs.200 denomination note to facilitate exchange transactions of common man and provide complete series of denomination for transactions at the lower end.

If we count the currency in circulation than the figure was Rs 17.74 lakh crore on November 4 out of which 86% was in the denomination of Rs 500 and Rs 1000 which got demonetized on 8th November evening. RBI has recentlyreported (Aug 2017) that Currency in circulation is reaching closure to pre-demonetization level and increased digital payment due to demonetization is also returning to normal level because the currency crunch is over. This is the point of confusion.

To understand it better, let’s first understand the cost of currency printing and circulation. This cost varies from Rs 2.87 to Rs 3.09 per Rs 500 note and from Rs 3.54 to Rs 3.77 for aRs 1,000 note. The cost of Rs 2,000 note is in the same range as that of the old Rs 1,000 note as explained by Finance Minister Mr. Arun Jaitley.The total currency in circulation isRs. 15.41 lakh crore (as on July 28, 2017). Let’s assume conservatively that 80%of this circulation i.e. Rs. 12 lakh crore is in higher denomination i.e. Rs. 500 and Rs. 2000 note. Further assume that around Rs.8 lakh crore is of 500 and Rs.4 lakh crore is of 2000. Thus approximately, 1600 Cr pieces of 500 denominations and 200cr of 2000 denomination must be there in circulation.
The cost of printing these currencies are more than Rs 5500cr which may be saved by shifting to digital payments. Currency in circulation as a proportion of GDP (gross domestic product) in India is the highest among emerging economies. The currency-GDP ratio stood at 10.6% at the end of March this year, the highest in 16 years. In fact, India has the highest currency-GDP ratio among BRICS (Brazil, Russia, India, China, and South Africa) nations.

Thus, Government should honestly work towards making the digital payment as most preferred way of transactions and slowly phase out the higher denomination of 500 and above. This will solve a number of problems imbedded in the system including corruption, Tax Evasion and possibilities of Parallel economic activities.  It can be achieved through following ways:


  1. Compulsory Digital Payment for all government transactions i.e.Govt. to Govt., Govt. to Pvt. and Pvt. to Govt. (for all values – no excuse).


  1. Compulsory Digital Payment for Pvt. Organization to Pvt. Org for the transaction values higher than Rs. 1000.
  2. Compulsory Digital Paymentfor Public transaction including retail purchasing beyond Rs. 2500. In case of non-compliance the both party should be punished.
  3. To make retail transactions through Digital Payment Government should make it more attractive through direct incentive of price discount. If discount is not feasible on digital payment because of cost constraint then it may easily be charged through an additional amount as a fee for cash payment. Every merchant has to make sure that compliances should be made.



Public at large is always rational. They follow the cost effective process on their own. Government should focus on this attribute and frame the policy accordingly. Government has to make sure that requisite infrastructure is available throughout country. Continuous supply of electricity and availability of internet is the minimum requirement for smooth implementation of Digital Payment. Effective regulation, clear guideline and faster dispute resolution will increase the confidence among users for Digital Payment system.I am sure that strong determination, honest effort and inclusive approach will transform the Indian Economy.


Dr. Kumar Bijoy is a Chartered Financial Analysts,

Head – Dept of Management Studies,  SSCBS – Delhi University


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