Expect 75% of old notes to be replaced in value by Jan: SBI arm

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Roughly 75 percent of the currency that was removed out of the system is expected to be pumped back into the system in new notes by January 2017, says a report by the Economic Research Department, State Bank of India (SBI). Soumya Kanti Ghosh, Chief Economic Adviser & GM, Economic Research Department, SBI in the report said that their results indicate that 50 percent of the total value of extinguished notes can be supplied by this month end and 75 percent by the end of next month, given that currency printing presses are working overtime. He added that by the end of February, about 78-88 percent of the currency could be back in the system under the best-case scenario in terms of an optimal currency distribution (more small denomination notes). 

“Interestingly, this number can go up to 98 percent if we disregard the currency composition,” said Ghosh. The research suggested that the government and RBI may look carefully at the cumulative withdrawal (a proxy for cash requirement) to cumulative deposits ratio across states and wherever it may be low could reorient the currency supply in such states. It said that states like Uttar Pradesh, Madhya Pradesh, Maharashtra, Andhra Pradesh, West Bengal, Punjab, Haryana, Bihar and Gujarat which are major agriculture-oriented, cash dependent may face more issues during this cash crunch period. 

Furthermore, it said that taking the loan portfolio as a proxy for cash requirement, the excess cash comes out to be around Rs 69,500 crore in the services sector which can be shifted to electronic mode of payment, thus taking down the cash requirement significantly. “With at least a 7 percent jump in small denomination currency share in overall currency post demonetisation it would enable use of money more as a medium of exchange and thereby get accounted rather than as a store of value,”

viny k.samual

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