While the RBI Is Silent, Its

Numbers Tell Us
Demonetisation Has Failed
Calculations based on the meagre numbers the RBI has released prove
that the governments aim of extinguishing black money has fallen flat.

Since the statement by the deputy governor on December 13, which said Rs 12.44 lakh crore of the
old Rs 500 and Rs 1000 notes (invalid notes) had been received by the RBI or in currency chests,
the RBI has put out no figures on the deposits of invalid notes the public has made with banks or the
value of such notes returned to the RBI. The exact amount of fresh or valid banknotes (new Rs 500
and Rs 2,000 notes and notes of smaller denominations) the RBI has put into circulation after
November 8 has also not been provided for a long time (and the one statement of December 7 that
did was subsequently withdrawn from the RBI website). Only a rough idea of this can be got from the
data on valid banknotes issued to public by banks since November 10. The last figure on this put out
by the RBI was Rs 5.93 lakh crore, as the amount issued up to November 19.

It is, however, possible to get around the RBIs miserly attitude towards releasing the data in its
possession to get at a reasonably accurate picture of what has happened and the picture itself
provides a possible explanation for the RBIs otherwise inexplicable increasing secretiveness. Lets
see how.

Figures for the currency in circulation (CIC), which is the sum of currency with the public and cash
with banks, are given out weekly by the RBI through its routine releases of reserve money data. The
last date before the demonetisation announcement for which this data was released was November 4,
at which time the CIC was Rs 17.97 lakh crore. Even on November 11, after two days of the banking
system working post the demonetisation announcement, the CIC was Rs 17.88 lakh crore. According
to the latest figures issued by the RBI on December 28, the CIC stood at Rs 9.42 lakh crore on
December 23, Rs 8.55 lakh crore less than the level on November 4. Indeed, the CIC has come down
every week after the demonetisation announcement, which means that the net infusion of fresh
currency by the RBI in each of these weeks has been less than the value of the old Rs 500 and Rs
1000 notes being returned to it over the same period.

The CIC on any date must be the sum of the values of the invalid and valid banknotes held by the
public and banks. In other words, it would exclude the invalid notes that had been already returned
to the RBI by that date but would include invalid notes deposited by the public with banks that
have not yet been transferred to the RBI. We also know that the value of invalid notes in the CIC on
November 8 was Rs 15.44 lakh crore. Let us now consider 21 alternative hypothetical scenarios of
combinations of the two types of currency, invalid and valid, that are all consistent with their sum
being Rs 9.42 lakh crore, the CIC on December 23. The first two columns in the table show these 21
combinations, in which the value of invalid notes ranges in increasing order between zero and Rs 2
lakh crore. Deducting the invalid notes value in each scenario from 15.44 lakh crore then give us the
corresponding hypothetical value of invalid notes returned to the RBI (third column).