Inflation effect: Equal number of Rs 1000 and Rs 500 currency notes to be printed for the first time

NEW DELHI: Rising prices are eating away the value of money, literally. The government is phasing out or printing fewer low-denomination currency notes, and printing more notes of higher denomination such as the 1,000 note.

For the first time, India will print as many new Rs 1,000 denominated notes as Rs 500 ones in 2011-12. In value terms, this will be the first time Rs 1,000 notes will account for more money printed than Rs 500 notes, which were the mainstay of high-value cash transactions for some time.

Thanks to inflation, the Rs 500 note is losing its position of pre-eminence among the currency notes printed by the Reserve Bank of India.

Eleven years after the Rs 1,000 note was introduced in October 2000, the RBI has ordered 2,000 million new amber-red Rs 1,000 notes. This is double the number ordered last year. The order for olive-and-yellow Rs 500 notes, which came into circulation in 1987, has been halved to Rs 2,000 million from last year.

In value terms, the new Rs 1,000 notes will add up to Rs 2 lakh crore, and Rs 1 lakh crore of Rs 500 notes. "ATMs can now dispense up to Rs 40,000 in one go. The Rs 1,000 notes are more convenient to dispense, fueling greater demand," said a finance ministry official.

Even banks want more Rs 1,000 notes to stock their ATMs, cutting down on the number of trunks full of cash they need to move between banks and cash dispensers.

The Rs 100 note is still the most-printed one, its print order growing from 4,300 million to 6,100 million this year.

But most banks have minimised the volume of Rs 100 notes at automatic cash-dispensing machines. Printing of the Rs 50 note has been slashed to 1,200 million from 2,000 million last year. "Lower denomination banknotes run out sooner and increase both capital cost and operating costs (of ATMs)," the RBI said in its annual report for 2004-05, commenting on the rise in demand for Rs 500 notes.

The Rs 1,000 currency note is the biggest one printed in India, measuring 17.7 cm by 7.3 cm, a good 1 cm longer than the Rs 500 note.

The RBI did not respond to queries by ET.

Banknotes worth Rs 1,000 and Rs 10,000 each were in circulation before Independence, but were demonetised in January 1946 to curb unaccounted money. The Rs 1,000, Rs 5,000 and Rs 10,000 face-value notes were reintroduced in 1954, but were demonetised again in January 1978. The RBI is authorised to issue notes with a face value of up to Rs 10,000, and coins that are each worth Rs 1,000.

Source: Economic Times