Launching Rs200 Note Will Fill Missing Middle: SBI

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New Delhi: Introduction of Rs200 note will fill in the “missing middle” even as the new currency in circulation (CIC) has already reached 84% of the pre demonetisation level, says a report.

Cash with banks, a CIC component, has however witnessed a decline over November 2016 level, said the State Bank of India (SBI) Ecowrap report. The data for 23 June 2017 shows cash in hand with banks declining to 5.4% of the currency in circulation from a high of 23.19% for the fortnight ended 25 November 2016, it said. Going by historical trends, cash in hand with banks is roughly 3.8% of CIC and is currently at 5.4%. This means at least an additional amount of 1.6%/ Rs25,000 crore of excess currency may be currently lying in ATMs and herein lies the importance of new Rs200 notes which could serve as the “missing middle” it said.

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The report added that Reserve Bank of India (RBI) has recently “put orders” for it. “The cash in hand with banks has been higher compared to the last year, because of demonetisation and the subsequent limits placed on withdrawals for some time. However, now the percentage is showing a decline and reaching pre- demonetisation levels,” it added.

The report noted that though there has been a significant move towards relocating distribution of currency towards smaller denominations post demonetisation, there is a mismatch caused by the presence of Rs2,000 denomination straight after Rs500 denomination. Moreover, an ATM machine typically holds 10,000 bills and if these were to comprise say only notes of Rs100, the number and cost of replenishment goes up significantly.

“Herein lies the paradox. Notes of Rs2,000 denomination in ATMs may find few takers because of missing middle/Rs200 note,” the report said. The Reserve Bank is reportedly expected to introduce Rs200 notes in the coming months to ease pressure on lower- denomination currencies that are in short supply.

The new notes of Rs200 should be out before the end of 2017 and will greatly help in narrowing the demand and supply gap in smaller-denomination currency bills.

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