Wednesday, February 20, 2013

Data source: RBI

 
A recent paper published by the Reserve Bank of India (RBI) on the circulation of currency over the past 4 decades offers interesting insights. Particularly the data that compares currency in circulation with private final consumption expenditure. Now currency to GDP is a multiple of two ratios - currency to private consumption expenditure and private consumption expenditure to GDP. As seen in the chart, a sharp increase in former over the past two decades accompanied by only a marginal fall in the latter, has led to surplus currency in circulation.