Abstract
India’s currency-to-GDP ratio indicates a strong and persistent demand for cash. Despite the withdrawal of two high-value banknotes in 2016 and the recent economic contraction due to the COVID-19 pandemic, cash continues to rule in India. Although there is extensive work on the demand for cash in India, relatively little is known about the quality and supply of banknotes. This paper provides an overview of currency management policies in India using publicly available annual aggregate issuances and disposals data from the Reserve Bank of India (RBI). We model the life of a banknote using survival analysis models, finding that low-value banknotes (INR 10 and 20) have a median life of 4–5 years. The estimates of longevity of a banknote are significantly associated with velocity of circulation as well as exogenous shocks. We demonstrate the value of survival analysis methods in informing currency management policies in India and providing avenues for future work in this domain.
| Original language | English |
|---|---|
| Pages (from-to) | 519–545 |
| Number of pages | 27 |
| Journal | Journal of Quantitative Economics |
| Volume | 22 |
| DOIs | |
| Publication status | Published - 23 Apr 2024 |
Keywords
- Banknote life
- Banknotes
- C41
- Central banks
- Currency management
- E42
- E58
- Hazard rates
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