India wants more lower denomination notes?

India wants more lower denomination notes?

In today’s Finshots, we take a look at why the government wants to roll out more lower denomination notes and what that means for you and the economy at large.

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The Story

The rumour mill on social media has been churning that ₹500 notes are on their way out. Others claim that the RBI plans to phase them out from ATMs by March next year.

But none of that’s true. There’s no official move to withdraw the ₹500. And yes, the RBI is still printing and circulating new ones.

So, what sparked the confusion?

Well, it all began when the Reserve Bank of India (RBI) issued a directive asking banks and ATM operators to increase the supply of ₹100 and ₹200 notes.

As the circular puts it…

i. By September 30, 2025: 75% of all ATMs shall dispense either ₹100 or ₹200 denomination banknotes from at least one cassette.
ii. By March 31, 2026: 90% of all ATMs shall dispense either ₹100 or ₹200 denomination banknotes from at least one cassette.’

(Sidebar: A cassette is the tray inside an ATM that holds and dispenses a specific note denomination—like ₹500s, ₹200s or ₹100s.)

That’s about it. No secret agenda, no covert demonetisation.

But even a small move like this says something bigger. Maybe it’s a quiet policy tilt toward lower denomination notes. After all, that’s what Finance Minister Nirmala Sitharaman recently hinted at.

Which begs a few questions. Why push small notes? What happens if higher denominations fall out of favour? And most importantly, is India ready to remonetise its economy again?

Let’s start with ₹500 notes itself.

Is the RBI still printing them?

Yes, absolutely. The RBI’s latest annual report is clear: it has stopped printing notes of ₹2, ₹5 and ₹2,000s. But the ₹500 is still very much in the mix. As per the ident (or printing orders) placed, the ₹500 note still features in RBI’s latest batches.

Source: RBI annual report

In fact, it’s the most widely circulated note in the system, making up over 40% of all notes by volume and holding 86% of the total currency value in circulation.

Source: RBI annual report

So it’s not going anywhere just yet.

But… there’s a bit of a pattern here. In 2016, ₹500 and ₹1,000 notes were demonetised overnight. To fill the vacuum, ₹2,000 notes were rolled out. But by 2018, it had already stopped printing them. And in 2023, the ₹2,000 note was officially pulled from the system.

A major reason behind it all was a strike against black money or counterfeiting. And now, something similar is happening with the ₹500. Not because it’s being pulled back. But because it’s starting to become a bit of a headache for the RBI too.

You see, while the number of overall counterfeit notes detected declined in FY25, the ₹500 bucked the trend. Because if someone wants to hoard ₹10 lakh in cash? That’s just 2,000 notes. And that’s perhaps why fake ₹500 notes increased from about 85,700 pieces to 1,17,700 pieces, a 37% jump over FY24.

Source: RBI annual report

And that’s only what was detected at banks or by the RBI. It excludes counterfeit notes seized by cops, or the ones still floating out there undetected. For comparison, fake ₹200 notes—the second-most counterfeited—only rose by about 14%.

So it gives that for those dealing in unaccounted money, the ₹500 is just perfect. Compact, discreet, hard to trace.

And if you’re a policymaker, the goal is simple. Make it harder to move large sums of unaccounted money discreetly. And that means making big money physically harder to move around. You push smaller notes instead. Because ₹10 lakh in ₹100 notes? That’s 10,000 pieces. Now you need a suitcase.

But this shift to lower denomination isn’t an easy walk and comes at huge costs.

Let’s start with printing.

A ₹100 note could cost around ₹1.77 to print. A ₹500 note costs about ₹2.30. So if you’re replacing a single ₹500 with five ₹100s, you spend over ₹8 to create the same ₹500 in value.

And it doesn’t stop there. Smaller notes wear out faster since they change more hands and need to be replaced more often. So if the RBI prints a few thousands ₹100 notes today, it’ll likely need to do it again next year. And the year after that.

It’s already weighing on the RBI’s wallet. In FY24, the RBI spent around ₹5,101 crore on currency printing. This year, it shot up by 25% to ₹6,372 crore. Go back to FY21 and the bill was just ₹4,012 crore. That’s over ₹2,300 crore jump in four years.

Then there’s the ATM problem.

Most ATMs today stock ₹500 notes. If you suddenly ask them to carry more ₹100s and ₹200s, they need recalibration. Change cassettes, adjust software and train cash handlers. And that’s just infrastructure. Once smaller notes dominate, ATMs run out of cash faster. Banks have to refill them more often. Cash vans do more trips. Security costs rise. It’s a logistical puzzle.

Back in 2018, when the new lavender-coloured ₹100 note was introduced, recalibrating the country’s 2.4 lakh ATMs was said to take nearly a year and cost around ₹100 crore.

So yes, smaller notes might fight black money. But they also punch a hole in the RBI’s as well as economy’s balance sheet.

There’s a cost for citizens too. Economists call it the "shoe-leather cost." It’s the time and effort people spend managing cash. That is walking to banks, standing in queues, withdrawing and exchanging notes. During demonetisation, a study in Delhi found that people went from 6 ATM visits a month to 16. The average person spent an extra 10.5 hours just getting cash. Multiply that by a billion, and you’re talking about a national productivity hit. Even the withdrawal of the ₹2,000 note wasn’t entirely painless. People rushed to exchange them, pay for COD orders, or offload them at jewellery stores charging a premium.

Now picture a similar scramble, simply because ₹500 notes become harder to find as before. No one’s telling you to switch to smaller notes, but there’s a nudge. ATMs might stop dispensing ₹500s as often. And suddenly, you’re walking away with stacks of ₹100s and ₹200s instead.

And that friction builds up. Shopkeepers will need more change. Small businesses will struggle with cash float. Delivery agents will be weighed down. The currency doesn’t disappear but convenience does, while the costs keep rising.

So what does all this add up to?

Well, the direction is clear: the government wants us to get used to smaller changes. Because it’s not just about currency. It’s about behaviour. If you’re handed a wad of ₹100s, you’re less likely to spend in bulk. You’ll swipe your card. Or scan that QR code. It’s a push away from cash and into the digital transaction economy, one that’s more granular and traceable.

And that’s perfectly fine. If it’s paired with better infrastructure. More ATMs, stronger connectivity, wider smartphone access, better financial literacy. Because without that, the cost of remonetisation would show up in long queues, wasted hours and lost trust.

Since 2016, we’ve swapped out notes, introduced new ones, pulled back others, recalibrated ATMs, reshuffled denominations. And sure, some of it has worked. UPI now handles over 18 billion transactions a  month. But cash still remains the king. As of March 2024, cash made up 60% of total consumer spending. And the amount of currency in circulation? It’s more than doubled between 2014 and 2024. Even ATMs and bank branches have grown by 30-35% in the same period.

So maybe the next shift India can make… is to stop changing notes all the time.

Until then…

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