Jaitley Right–And Wrong–On Currency In Circulation


  jaitley_750  

As one justification for scrapping 86% of India’s currency by value, Finance Minister Arun Jaitley--implying too much currency was circulating in India--said on November 22, 2016, that currency is 4% of gross domestic product (GDP) in most developed nations, while in India it is 12%.

   

Currency with the public in India was almost 12% of GDP in the financial year 2015-16, up from 11% last year, rising 33% over the last three years to October 2016, according to data published by the Reserve Bank of India (RBI).

 

Source: Reserve Bank of India

 

A global comparison shows that although the currency in circulation in many countries is lesser than in India, it is not necessarily 4% as claimed by the finance minister.

 

In the United States, as much as $1.48 trillion is in circulation, according to data released by the Federal Reserve, which works out to approximately 8% of its GDP, or double the 4% that Jaitley cited.

 

*Calculated with respective reserve banks data of currency in circulation and the exchange rate adjusted GDP figures. (2015-16)

Source: Federal Reserve, Bank of England, Bank of Canada, Reserve Bank of Australia, Reserve Bank of India, World Bank.

 

Currency in circulation in some BRICS (Brazil, Russia, India, China, South Africa) nations, such as Brazil (4.4%)and Russia (8.9%), is lower than in India, although it is more than 4%.

 

“Higher the circulation of money, more transactions take place out of the banking system,” said Jaitley. Indeed, the proportion of cash to bank deposits has steadily risen.

 

Over the last three years (2013-16), cash with the Indian public was 50% more than the money they kept in banks, IndiaSpend reported on November 12, 2016. In 2007, currency and bank deposits were almost equal, according to RBI data

 

Source: Reserve Bank of India Bulletin

 

By one estimate, cash still accounts for almost 90% of all monetary transactions in India.

 

(Spencer holds an M.A. in public policy from St Xavier’s College, Mumbai, and is an intern with IndiaSpend.)

 
jaitley_750

As one justification for scrapping 86% of India’s currency by value, Finance Minister Arun Jaitley--implying too much currency was circulating in India--said on November 22, 2016, that currency is 4% of gross domestic product (GDP) in most developed nations, while in India it is 12%.

Currency with the public in India was almost 12% of GDP in the financial year 2015-16, up from 11% last year, rising 33% over the last three years to October 2016, according to data published by the Reserve Bank of India (RBI).

Source: Reserve Bank of India

A global comparison shows that although the currency in circulation in many countries is lesser than in India, it is not necessarily 4% as claimed by the finance minister.

In the United States, as much as $1.48 trillion is in circulation, according to data released by the Federal Reserve, which works out to approximately 8% of its GDP, or double the 4% that Jaitley cited.

*Calculated with respective reserve banks data of currency in circulation and the exchange rate adjusted GDP figures. (2015-16)

Source: Federal Reserve, Bank of England, Bank of Canada, Reserve Bank of Australia, Reserve Bank of India, World Bank.

Currency in circulation in some BRICS (Brazil, Russia, India, China, South Africa) nations, such as Brazil (4.4%)and Russia (8.9%), is lower than in India, although it is more than 4%.

“Higher the circulation of money, more transactions take place out of the banking system,” said Jaitley. Indeed, the proportion of cash to bank deposits has steadily risen.

Over the last three years (2013-16), cash with the Indian public was 50% more than the money they kept in banks, IndiaSpend reported on November 12, 2016. In 2007, currency and bank deposits were almost equal, according to RBI data

Source: Reserve Bank of India Bulletin

By one estimate, cash still accounts for almost 90% of all monetary transactions in India.

(Spencer holds an M.A. in public policy from St Xavier’s College, Mumbai, and is an intern with IndiaSpend.)

You may also like...

4 Responses

  1. MANISH PARASHAR says:

    PIB tweet says in “most” developed nations. UK, Canada and Australia have within 4 pct of cash as GDP. Probably a comparison of all OECD countries help shed more light? Jaitley is correct on this.

  2. ketan says:

    UK , Canada, Australia average will be less than 4 % hence Arun Jaitley is correct !!

  3. Rambler says:

    USD is a global currency used for international transactions even outside the Us so comparing it with the INR is silly.

  4. Gautam Patel says:

    It seems large portion (almost 2/3rd) of US 100$ notes are circulating outside of US. So it would not make any sense to compare the cash to gdp ratio of US while looking at India’s cash to gdp. Also a few other developed countries are lower than 4%, but the author keeps picking up only the ones > 4%.

Leave a Reply

Your email address will not be published. Required fields are marked *