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Series A · Part 12RBI, Monetary Policy & Central Banking

How the RBI Manages Currency in Circulation

How the RBI issues, distributes, cleans and withdraws notes: the law, the minimum reserve, chests, counterfeits, the ₹2000 withdrawal, cash-to-GDP and festive liquidity drains.

Pareto Academy · 24 October 2026 · 35 min read

Every rupee note in your wallet is a liability of the Reserve Bank of India. The RBI decides how many notes to print, orders them from four presses, moves them through 19 Issue Offices and about 2,600 currency chests, takes back the soiled ones and shreds them, and catches the fakes. On 31 March 2026 there were ₹41.24 lakh crore of banknotes in circulation (17,132 crore pieces) and ₹40,814 crore of coins. By mid-October 2026 currency in circulation had reached ₹43.46 lakh crore, growing at its fastest pace in five years. This part explains the law behind the rupee, how the currency system works from printing press to shredder, what the denomination data show, how demonetisation and the ₹2000 withdrawal played out, and why cash demand matters for liquidity and monetary policy.

Part 2, the functions and responsibilities of the RBI, gives a short overview of the currency function and the route notes take from the presses to the public. This part goes further. For how currency withdrawals drain bank reserves, see also open market operations and liquidity and the LAF and MSF. The digital rupee is covered in the digital rupee (CBDC).

Estimate demandGDP, inflation,soiled-note needsPlace indentRBI + Government;2,810 crore piecesPrint notesNashik, Dewas,Mysuru, SalboniIssue Offices19 offices, then2,599 chestsPublicspends, saves,deposits backMachine sortingat chests andIssue OfficesFitre-issued tothe publicUnfitshredded andbriquettedCounterfeitimpounded; FIRif 5+ in one goback intocirculationSection 27no re-issue ofsoiled notesNote RefundRules, 2009: valuefor mutilated notes2025-26: 1,702 crore unfit notes destroyed; 2,29,746 fakes detectedSource: RBI Annual Report 2025-26, Chapter VIII; RBI Act, 1934
The life of a banknote: the RBI estimates demand and places an indent, presses print, notes flow through Issue Offices and chests to the public, and returned notes are sorted into fit (re-issued), unfit (shredded) and counterfeit (impounded).

In the news

  • 23 October 2026: currency growth at a five-year high. The RBI's "State of the Economy" article said growth in currency in circulation was the highest in five years as on 30 September 2026. Business Standard reported currency in circulation at ₹43.46 lakh crore on 15 October, up 13.5% from a year earlier. Why it matters for the exam: currency is the largest part of reserve money, so its growth is a regular data question.
  • Week ended 9 October 2026: ₹500 notes still dominate. RBI weekly data put banknotes in circulation at ₹42.90 lakh crore, of which ₹500 notes were ₹36.81 lakh crore (85.8%). ₹2000 notes worth ₹5,209 crore were still outstanding. Why it matters for the exam: the ₹500 share of value has stayed between 85% and 87% for three years.
  • 29 May 2026: Annual Report 2025-26. Banknotes in circulation rose 11.9% in value and 10.5% in volume in 2025-26. The ₹500 note made up 85.5% of value and 41.2% of volume, followed in volume by the ₹10 note (16.1%). Why it matters for the exam: the Annual Report's currency chapter is the standard source for denomination questions.
  • 29 May 2026: fake ₹500 notes up 20.5%. Counterfeits detected in the banking system rose to 2,29,746 pieces in 2025-26. Fake ₹500 notes rose to 1,41,907 and fake ₹20 notes rose 47.4%, while fakes in ₹10, ₹50, ₹100, ₹200 and ₹2000 fell. Why it matters for the exam: the ₹500 note is now about 62% of all fakes detected.
  • 29 May 2026: printing bill falls. The RBI spent ₹4,875.2 crore on security printing in 2025-26, down from ₹6,372.8 crore, because it ordered fewer notes (28.1 billion pieces against 30.3 billion). Why it matters for the exam: cost of printing is reported in the Annual Report every year.
  • 1 May 2026: 98.47% of ₹2000 notes returned. Of the ₹3.56 lakh crore of ₹2000 notes in circulation on 19 May 2023, only ₹5,451 crore remained on 30 April 2026. The notes remain legal tender. Why it matters for the exam: withdrawal from circulation is not demonetisation.
  • October 2025: festive cash demand. The RBI's Annual Report noted a "significant increase" in currency in circulation in October 2025, the festive month. Currency withdrawals drained ₹1.25 lakh crore from the banking system in October–December 2025. Why it matters for the exam: festive cash demand is a classic cause of tight liquidity.
  • 10 September 2025: Indian Currency microsite. The RBI launched indiancurrency.rbi.org.in, replacing the "Paisa Bolta Hai" site, with 360-degree views of security features and a section on exchanging notes. Why it matters for the exam: public awareness tools are a recurring current-affairs topic.

The legal basis

Notes: the RBI Act

The RBI's monopoly on notes comes from the Reserve Bank of India Act, 1934. The key sections are:

Section What it says
22 The RBI has the sole right to issue bank notes in India.
22A Sections 24, 25, 27, 28 and 39 do not apply to notes in digital form (inserted by the Finance Act, 2022, for the e₹).
23 Notes are issued by an Issue Department, kept "wholly distinct" from the Banking Department.
24 Notes may be of ₹2, ₹5, ₹10, ₹20, ₹50, ₹100, ₹500, ₹1,000, ₹5,000 and ₹10,000, or other values not exceeding ₹10,000, as the Central Government specifies on the Central Board's recommendation.
25 Design, form and material are approved by the Central Government after considering the Central Board's recommendations.
26 Every note is legal tender and guaranteed by the Central Government. Section 26(2) lets the government, on the Board's recommendation, declare a series no longer legal tender.
27 The RBI "shall not re-issue bank notes which are torn, defaced or excessively soiled". This is the legal root of the Clean Note Policy.
28 No one has a right to recover the value of lost, stolen, mutilated or imperfect notes, but the RBI may refund them "as of grace" under rules (the Note Refund Rules, 2009).
33 Assets of the Issue Department: gold, foreign securities, rupee coin and rupee securities.
34 Liabilities of the Issue Department equal the notes in circulation.
38 The government puts rupee coins into circulation only through the RBI.
39 The RBI must exchange notes for coins and coins for notes on demand.

The ₹2000 note was introduced in November 2016 under Section 24(1). Section 24 also explains why a ₹5,000 or ₹10,000 note could be brought back by notification, without a change in the law.

Coins: the Coinage Act, 2011

Coins are issued by the Government of India under the Coinage Act, 2011, which allows coins up to ₹1,000. The government designs and mints them at its four mints, and the RBI's role is limited to distributing them. Coins of ₹1 and above are legal tender for any sum up to ₹1,000 in a single transaction, and the 50 paise coin for sums up to ₹10. Nobody can be forced to take more coins than this, but accepting more is not prohibited. Banks face no RBI limit on accepting coin deposits. The ₹1 note is also a government note, not an RBI bank note.

The minimum reserve system

When the RBI issues a note, it must hold assets of equal value in the Issue Department (Section 33(1)). Section 33(2) then sets a floor for the quality of those assets:

  • gold coin, gold bullion and foreign securities together: at least ₹200 crore;
  • of which gold: at least ₹115 crore.

The rest can be rupee coin, government securities and eligible bills. This is the minimum reserve system. The present text of Section 33(2) was inserted by the Reserve Bank of India (Second Amendment) Act, 1957, with effect from 31 October 1957. It replaced the original proportional reserve system, under which gold and sterling had to back a fixed share of the note issue.

The floor is now tiny. On 31 March 2026 the Issue Department held:

Asset (31 March 2026) ₹ crore Share
Foreign securities 37,36,152 90.6%
Gold 3,88,147 9.4%
Rupee coin 468 0.01%
Rupee securities 0 0%
Total = notes issued 41,24,767 100%

Worked example: how much does the legal minimum cover? The legal minimum of gold plus foreign securities is ₹200 crore. Notes issued were ₹41,24,767 crore.

  • ₹200 ÷ ₹41,24,767 = 0.0000485, or about 0.005% of notes issued.
  • The actual gold and foreign securities held were ₹37,36,152 + ₹3,88,147 = ₹41,24,299 crore, or 99.99% of notes issued.

So the note issue is backed almost entirely by foreign assets, even though the law asks for very little. In practice, the note issue grows with demand, not with gold. For the full balance sheet, see the RBI balance sheet.

How the currency system works

Step 1: estimating demand and placing the indent

Each year the RBI, in consultation with the government, estimates how many notes of each denomination will be needed and places an indent (an order) with the presses. The estimate has two parts:

  • the expected increase in notes in circulation, from statistical models using expected GDP growth, inflation, interest rates and growth in non-cash payments;
  • the replacement of soiled notes, which depends on the stock in circulation and the average life of each denomination.

The RBI also uses feedback from its Regional Offices and banks.

Indent of banknotes (crore pieces) 2023-24 2024-25 2025-26
₹10 80 180 460
₹20 200 150 200
₹50 250 300 200
₹100 700 800 700
₹200 300 400 150
₹500 900 1,200 1,100
Total 2,430 3,030 2,810

The presses supplied exactly what was ordered in all three years. No ₹2000 or ₹5 notes were ordered. The large rise in the ₹10 indent in 2025-26 stands out. Coin indents also rose, from 150 crore pieces in 2024-25 to 210 crore in 2025-26, with more ₹10 and ₹20 coins.

Step 2: printing

Notes are printed at four presses:

  • Nashik and Dewas, owned by the government's Security Printing and Minting Corporation of India Ltd (SPMCIL);
  • Mysuru and Salboni, owned by Bharatiya Reserve Bank Note Mudran Pvt Ltd (BRBNMPL), a wholly owned subsidiary of the RBI.

Coins are minted by SPMCIL at Mumbai, Hyderabad, Kolkata and Noida. In 2025-26 BRBNMPL ran print trials of varnished notes at Mysuru, which should last longer. Its Currency Research and Development Centre began working with research institutions. The Annual Report said a phased roll-out of notes with new or upgraded security features was expected to start from the middle of 2026.

Step 3: distribution

Fresh notes go to the RBI's 19 Issue Offices (Ahmedabad, Bengaluru, Belapur, Bhopal, Bhubaneswar, Chandigarh, Chennai, Guwahati, Hyderabad, Jaipur, Jammu, Kanpur, Kolkata, Lucknow, Mumbai, Nagpur, New Delhi, Patna and Thiruvananthapuram), and some go straight from the presses to chests. From there they go to currency chests: storehouses of RBI-owned cash kept in bank branches. Notes in a chest still belong to the RBI and are not counted as currency in circulation until a bank withdraws them. The RBI's 2026-27 agenda includes opening two new Issue Offices.

Currency chests and small coin depots (end-March 2026) Chests Small coin depots
State Bank of India 1,298 1,073
Nationalised banks 1,053 834
Private sector banks 229 196
Regional rural banks 8 7
Cooperative banks 5 5
Foreign banks 5 3
RBI 1 1
Total 2,599 2,119

SBI alone runs half the chests. Part 2 quoted 2,691 chests on 28 February 2025; the number fell to 2,599 by March 2026.

Step 4: the Clean Note Policy and soiled notes

Under its Clean Note Policy, the RBI tries to keep only good-quality notes in circulation. Notes returning to Issue Offices and chests are machine-sorted. Fit notes are re-issued. Unfit (soiled or mutilated) notes are destroyed in Shredding and Briquetting Systems, which turn them into small bricks. The RBI destroyed 1,702 crore pieces of soiled notes in 2025-26, down from 2,386 crore the year before, because it was replacing these machines at its Issue Offices.

For the public, the policy means:

  • do not staple notes;
  • do not write on them or stamp them;
  • do not use them for garlands, toys, decorations or showering at events.

Notes with writing or stains remain legal tender if they can be read. Every bank branch must exchange soiled notes (dirty from normal use, or a note in two pieces pasted together) for full value, even for non-customers. Mutilated notes (a portion missing, or more than two pieces) and imperfect notes (washed, shrunk or obliterated) are paid for under the RBI (Note Refund) Rules, 2009, amended in 2018 for the smaller Mahatma Gandhi (New) series. All bank branches can adjudicate them free of charge. Banks that refuse face penalties of ₹10,000 per deficiency.

The ₹2000 withdrawal was also done "in pursuance of the Clean Note Policy", which shows how far the policy reaches.

Step 5: catching counterfeits

Banks must check every note tendered at the counter or received in bulk through machines. If a note is fake:

  • it is stamped "COUNTERFEIT BANKNOTE" and impounded. It is never returned to the person and never destroyed by the branch;
  • the tenderer gets no credit but receives an acknowledgement receipt;
  • up to four fakes in one transaction go to the police in a monthly consolidated report;
  • five or more fakes in one transaction lead to an FIR immediately.

Counterfeiting is an offence under Sections 178 to 182 of the Bharatiya Nyaya Sanhita, 2023, with punishment from fine up to life imprisonment. Mere possession is not an offence. Possession is punishable (up to seven years) only when the person knows a note is fake and intends to use it as genuine.

Banks are penalised ₹10,000 per instance if fakes are found in ATM dispensations or over-the-counter payments, or if they fail to impound a fake.

Currency in circulation: the 2025-26 data

Value and volume by denomination

Denomination Volume (crore pieces) Volume share Value (₹ crore) Value share
₹2 and ₹5 1,102 6.4% 4,232 0.1%
₹10 2,757 16.1% 27,565 0.7%
₹20 1,405 8.2% 28,105 0.7%
₹50 1,082 6.3% 54,120 1.3%
₹100 2,686 15.7% 2,68,573 6.5%
₹200 1,042 6.1% 2,08,491 5.1%
₹500 7,055 41.2% 35,27,408 85.5%
₹2000 3 0.02% 5,501 0.1%
Total 17,132 100% 41,23,995 100%

Banknotes in circulation at end-March 2026. Source: RBI Annual Report 2025-26, Table VIII.1.

Banknotes by denomination, end-March 2026 (% of total)Volume (pieces)Value (₹)0%20%40%60%80%₹2 and ₹56.4%0.1%₹1016.1%0.7%₹208.2%0.7%₹506.3%1.3%₹10015.7%6.5%₹2006.1%5.1%₹50041.2%85.5%₹20000.02%0.1%Total: 17,132 crore notes worth ₹41.24 lakh crore. Source: RBI Annual Report 2025-26, Table VIII.1
At end-March 2026 the ₹500 note was 41.2% of banknotes by number but 85.5% by value; the ₹10 and ₹100 notes together were almost a third of all pieces but only 7.2% of value.

Three things stand out:

  • The ₹500 note is the workhorse. It carries 85.5% of value. Add the ₹200 and ₹100 notes and the three make up 97.1% of value.
  • Small notes are many but worth little. ₹50 and below are 37.0% of pieces but only 2.8% of value.
  • The ₹500 share has stopped rising. It was 86.5% of value in March 2024, 86.0% in 2025 and 85.5% in 2026, as ₹100 and ₹200 notes grew faster.

Worked example: the average note. Banknotes in circulation were ₹41,23,995 crore in 17,13,215 lakh pieces.

  • Convert to the same unit: ₹41,23,995 crore = ₹4,12,39,950 lakh.
  • Average value = ₹4,12,39,950 lakh ÷ 17,13,215 lakh pieces = about ₹241 per note.

The average note is worth roughly half a ₹500 note because the many small notes pull it down.

Coins and the e₹

Coins in circulation rose 11.4% in value to ₹40,814 crore and 4.5% in volume to 14,329 crore pieces in 2025-26. Coins of ₹1, ₹2 and ₹5 were 80.7% of coins by volume and 60.2% by value. The ₹10 and ₹20 coins are growing fastest: the ₹20 coin's share of coin value rose from 9.4% in 2024 to 13.1% in 2026.

The e₹ (digital rupee) in circulation was ₹771.7 crore on 31 March 2026, down from ₹1,016.5 crore a year earlier. It recovered to ₹1,140 crore by the week ended 9 October 2026. It is legally a bank note in digital form (Section 22A) but is tiny next to ₹42.9 lakh crore of paper.

Currency in circulation, notes in circulation and currency with the public

These terms are easily confused:

  • Notes in circulation (NiC): banknotes issued by the RBI and not held in its own vaults or chests. It equals the Issue Department's liability.
  • Currency in circulation (CiC): notes in circulation plus rupee coins and small coins. It is the largest part of reserve money (M0): 81.4% of it in 2025-26.
  • Currency with the public: CiC minus cash held by banks. It is a component of broad money (M3).

Currency and the economy

The cash-to-GDP ratio

Currency in circulation as % of nominal GDP (end-March)6810121416New GDP series(base 2022-23)12.12015-168.72016-1710.72017-1811.32018-1912.22019-2014.42020-2113.32021-2212.92022-2312.12023-2411.72024-2512.02025-26DemonetisationPandemic peakCiC = notes + coins. Sources: RBI Handbook of Statistics (Tables 1 and 151); Pareto calculation
Currency in circulation as a share of nominal GDP, 2015-16 to 2025-26: from 12.1% before demonetisation, down to 8.7% in March 2017, up to a pandemic peak of 14.4% in 2020-21, and around 12% since.
End-March CiC (₹ lakh crore) Nominal GDP (₹ lakh crore) CiC/GDP
2016 16.63 137.72 12.1%
2017 13.35 153.92 8.7%
2018 18.30 170.90 10.7%
2019 21.37 189.00 11.3%
2020 24.47 201.04 12.2%
2021 28.54 198.54 14.4%
2022 31.34 235.97 13.3%
2023* 33.78 261.18 12.9%
2024* 35.11 289.84 12.1%
2025* 37.23 318.07 11.7%
2026* 41.65 346.36 12.0%

CiC is notes plus coins from the RBI Handbook of Statistics (Table 151). GDP for 2015-16 to 2021-22 is the 2011-12 base series; rows marked * use the new 2022-23 base series, so the break between 2022 and 2023 is partly a change in GDP measurement.

The RBI's own Annual Report for 2016-17 gave the March 2017 ratio as 8.8%, down from 12.2%, using GDP estimates of that time. Later GDP revisions change the second decimal, which is why sources differ slightly. The story is the same: demonetisation cut the ratio by about a third, the pandemic lifted it to a peak in 2020-21 as people hoarded cash, and since then it has settled around 12%. In 2025-26 it rose again, which the RBI linked to welfare transfers by state governments, consumption after the GST and income-tax cuts, lower interest rates and higher gold and silver prices.

Digital payments and cash

India has two trends running at once. Cashless transactions grew 26.8% in volume in 2025-26, and retail digital payments grew 26.9% in volume and 15.1% in value. Yet currency in circulation grew 11.4%, faster than nominal GDP (about 8.9%), and the RBI's 2025-26 survey of households and small retailers found "continued strong preference for usage of cash".

The usual explanation is that UPI has replaced cash for transactions while cash is still held as a store of value and a precaution, especially in rural areas and among small traders. That fits the denomination data: the ₹500 note, a note for saving and large payments, keeps 85% of the value. The ratio of cash to GDP has stopped rising, but it has not fallen far either.

Demonetisation, 2016

On 8 November 2016 the government, using Section 26(2), declared that ₹500 and ₹1,000 notes of the existing series would cease to be legal tender from 9 November 2016. These "specified bank notes" (SBNs) were nearly 86% of the value of notes in circulation. A new Mahatma Gandhi (New) series, including a new ₹2000 note, was introduced at the same time.

What happened next, from the RBI's Annual Reports:

  • Currency in circulation fell to a low of about ₹9 lakh crore on 6 January 2017, around half its pre-demonetisation peak.
  • Between 9 November and 31 December 2016 the RBI put 2,380 crore pieces worth ₹5.54 lakh crore into circulation, flying notes from presses to chests and using a hub-and-spoke model.
  • By end-March 2017 CiC was 74.3% of its peak, and notes in circulation reached about 85% of their 4 November level by 30 June 2017.
  • The Specified Bank Notes (Cessation of Liabilities) Act, 2017, notified on 27 February 2017, ended the RBI's liability on SBNs.
  • In all, SBNs worth ₹15.31 lakh crore were returned.
  • The RBI spent ₹7,965 crore on security printing in July 2016–June 2017, against ₹3,420 crore in 2015-16.
Currency in circulation around demonetisation, ₹ lakh crore0510152025Jan 2016Jan 2017Jan 2018Jan 20198 Nov 2016: ₹500 and ₹1,000 notescease to be legal tender16.63 (Mar 2016)≈17.97 peak≈9.0 low, 6 Jan 201713.35 (Mar 2017)18.30 (Mar 2018)21.37Peak derived from RBI (Mar 2017 = 74.3% of peak). Points joined by straight lines.Sources: RBI Annual Report 2016-17; RBI Handbook of Statistics, Table 151
Currency in circulation fell from about ₹18 lakh crore before November 2016 to about ₹9 lakh crore on 6 January 2017, then recovered to ₹13.35 lakh crore by March 2017 and passed its old peak by March 2018.

The pre-demonetisation peak is not published as a single number in the Annual Report. From its statement that end-March 2017 CiC (₹13.35 lakh crore) was 74.3% of the peak: ₹13.35 ÷ 0.743 = about ₹17.97 lakh crore.

Demonetisation also hit liquidity. As people deposited old notes, banks were flooded with reserves. The RBI absorbed them through reverse repos, a temporary incremental CRR of 100% on deposits that rose between 16 September and 11 November 2016, and Market Stabilisation Scheme bonds.

The ₹2000 note: withdrawn, not demonetised

The ₹2000 note was a stopgap after demonetisation. Printing stopped in 2018-19. Its circulation peaked at ₹6.73 lakh crore (37.3% of notes in circulation) on 31 March 2018. About 89% of the notes had been issued before March 2017 and were near the end of their estimated 4–5 year life.

On 19 May 2023 the RBI announced it would withdraw the note from circulation under the Clean Note Policy, while keeping it legal tender. Banks accepted the notes until 7 October 2023. Since then, the 19 RBI Issue Offices exchange them or take them for deposit, and people can post them through India Post.

Date ₹2000 notes outstanding Share returned
19 May 2023 (announcement) ₹3.56 lakh crore –
28 February 2026 ₹5,551 crore 98.44%
31 March 2026 ₹5,501 crore 98.45%
30 April 2026 ₹5,451 crore 98.47%
Week ended 9 October 2026 ₹5,209 crore about 98.5%

The October 2026 figure is from RBI weekly circulation data; the share is our calculation (1 − 5,209 ÷ 3,56,000).

Demonetisation vs withdrawal:

Demonetisation, 2016 ₹2000 withdrawal, 2023
Legal tender? Ended (Section 26(2) notification) Still legal tender
Notes ₹500 and ₹1,000 of the old series ₹2000
Share of note value Nearly 86% 10.8% (March 2023)
Who decided Government, on RBI Board's recommendation RBI, under its Clean Note Policy
Previous case 1946 and 1978 Similar withdrawal in 2013-14

Counterfeits

Counterfeit notes detected (pieces) 2023-24 2024-25 2025-26
₹10 235 159 133
₹20 297 253 373
₹50 15,366 12,015 10,274
₹100 66,310 51,069 45,621
₹200 28,672 32,660 30,591
₹500 (new series) 85,711 1,17,722 1,41,907
₹2000 26,035 3,508 824
Total (all, incl. old series) 2,22,639 2,17,396 2,29,746
Counterfeit notes detected in the banking system (pieces)2023-242024-252025-26050,0001,00,0001,50,000₹5015,36612,01510,274₹10066,31051,06945,621₹20028,67232,66030,591₹50085,7111,17,7221,41,907₹200026,0353,508824Totals (all denominations): 2,22,639 → 2,17,396 → 2,29,746. Source: RBI Annual Report 2025-26, Table VIII.8
Counterfeit notes detected in the banking system by denomination, 2023-24 to 2025-26: fake ₹500 notes rose from 85,711 to 1,41,907 while fake ₹2000 notes fell from 26,035 to 824.

Of the 2025-26 fakes, 97.6% were detected at other banks and only 2.4% at the RBI. These figures exclude notes seized by the police.

Worked example: how common are fakes?

  • Growth in ₹500 fakes = (1,41,907 − 1,17,722) ÷ 1,17,722 = 24,185 ÷ 1,17,722 = 20.5%.
  • ₹500 share of all fakes = 1,41,907 ÷ 2,29,746 = 61.8%.
  • ₹500 notes in circulation = 7,05,482 lakh = 70,548 million pieces. Fakes per million ₹500 notes = 1,41,907 ÷ 70,548 = about 2 per million.

So fakes are rare, but the high-value ₹500 note is the main target, and its share of fakes has grown as the ₹2000 note has left circulation.

The cost of printing

Year Security printing expenditure
2015-16 ₹3,420 crore
2016-17 (July–June) ₹7,965 crore
2017-18 (July–June) ₹4,912 crore
2024-25 ₹6,372.8 crore
2025-26 ₹4,875.2 crore

The spike in 2016-17 was the cost of replacing demonetised notes, including airlifting them. The RBI's accounting year moved from July–June to April–March from 2020-21.

Worked example: average cost per note in 2025-26. The RBI spent ₹4,875.2 crore and received 2,81,000 lakh pieces.

  • ₹4,875.2 crore = ₹48,752 million; 2,81,000 lakh pieces = 28,100 million pieces.
  • Average = ₹48,752 million ÷ 28,100 million = about ₹1.73 per note.

This is a rough average across all denominations. Higher denominations, with more security features, cost more than lower ones. The low cost per note is why the RBI keeps notes clean and long-lived, and why ₹1, ₹2 and ₹5 notes were "coinised": printing and handling them cost too much for their short life.

How currency demand affects liquidity

Cash withdrawals drain reserves

When you withdraw ₹10,000 from an ATM, your bank's balance with the RBI eventually falls by ₹10,000, because the bank must replace the cash from a currency chest, which debits its RBI account. Across the economy, a rise in currency in circulation is a drain on banking system liquidity. A fall (cash returning to banks) adds liquidity. In the RBI's liquidity tables, CiC is listed as an "autonomous driver": the RBI does not control it but must offset it.

The 2025-26 drivers were:

Liquidity in 2025-26 (₹ crore) Effect
Currency in circulation −4,43,215
Net forex sales −4,69,454
Government cash balances −1,66,865
Net OMO purchases +8,77,567
Term repo auctions +1,62,235

Data up to 30 March 2026. Minus = drain from the banking system. Source: RBI Annual Report 2025-26, Table III.1.

Currency demand drained ₹4.43 lakh crore in 2025-26, more than double the ₹2.13 lakh crore of 2024-25. The RBI more than offset it with OMO purchases, forex swaps, term repos and the CRR cut (see CRR and SLR).

The festive and seasonal pattern

Effect of currency demand on bank liquidity, 2025-26 (₹ lakh crore)+0.50.0−0.5−1.0−1.5−2.0−2.5−0.97Apr–Jun2025+0.23Jul–Sep2025−1.25Oct–Dec2025−2.44Jan–Mar2026Festive seasonDrainCash returnsFull year: −4.43 (2025-26) vs −2.13 (2024-25). Source: RBI Annual Report 2025-26, Table III.1
Currency withdrawals by quarter in 2025-26: a drain of ₹0.97 lakh crore in April–June, a small return of ₹0.23 lakh crore in July–September, then drains of ₹1.25 lakh crore in October–December and ₹2.44 lakh crore in January–March.

Cash demand has a clear seasonal rhythm:

  • Festive season (October–November): Dussehra and Diwali bring heavy withdrawals for shopping, gifts and gold. In 2025-26, October–December drained ₹1.25 lakh crore.
  • January–March: the largest drain of 2025-26 came in the last quarter, ₹2.44 lakh crore, as currency demand stayed high through the year-end.
  • Monsoon months (July–September): cash can flow back to banks when spending slows. In July–September 2025, ₹22,727 crore returned.

The RBI plans its liquidity operations around these patterns. In a surplus system, as in 2025-26, the drain is absorbed by the surplus. In a deficit system, the RBI injects money through VRR auctions, OMO purchases or forex swaps. See open market operations and liquidity.

Worked example: a festive drain. Suppose the banking system starts October with a surplus of ₹2.00 lakh crore parked in the SDF, and the public withdraws ₹1.25 lakh crore of cash before Diwali, while nothing else changes.

  • Surplus after the drain = ₹2.00 − ₹1.25 = ₹0.75 lakh crore.
  • If the drain had been ₹2.50 lakh crore, the system would swing to a deficit of ₹0.50 lakh crore, and banks would need VRR or MSF borrowing. Overnight rates would rise towards the repo rate or above it, and the RBI would have to inject money to keep the call rate near its target.

This is why the RBI's statements so often list "currency leakage" next to government cash balances and forex operations as the forces moving liquidity.

Common exam traps

RBI notes, government coins. The RBI issues notes (Section 22). The government issues coins and the ₹1 note (Coinage Act, 2011). The RBI only distributes coins (Section 38).

Minimum reserve numbers. ₹200 crore is the total of gold and foreign securities; ₹115 crore is the gold part within it, not in addition to it.

Withdrawal vs demonetisation. The ₹2000 note is still legal tender. Only the 2016 ₹500/₹1,000 notes, and earlier the 1946 and 1978 high-denomination notes, lost legal tender status.

Value vs volume. The ₹500 note is 85.5% of value but 41.2% of volume. The second most common note by number is the ₹10, not the ₹100.

Currency chests are not branches of the RBI. They are run by banks (mostly SBI) on the RBI's behalf. Cash in a chest is RBI cash and is not counted as currency in circulation.

Coin limits. Coins of ₹1 and above are legal tender up to ₹1,000 in one transaction; the 50 paise coin up to ₹10. These are limits on forcing someone to accept coins, not bans.

Counterfeit reporting. Up to four fakes: monthly report to police. Five or more in one transaction: FIR.

Key facts at a glance
Sole right to issue notes Section 22, RBI Act, 1934
Highest note allowed by law ₹10,000 (Section 24)
Coins issued by Government of India, Coinage Act, 2011 (up to ₹1,000 coins)
Minimum reserve (Section 33(2)) ₹200 crore gold + foreign securities, of which ₹115 crore gold (since 31 October 1957)
Notes issued, 31 March 2026 ₹41,24,767 crore (+11.8%)
Banknotes in circulation, end-March 2026 ₹41.24 lakh crore; 17,132 crore pieces
₹500 share 85.5% of value, 41.2% of volume
Coins in circulation, end-March 2026 ₹40,814 crore
e₹ in circulation, 31 March 2026 ₹771.7 crore
CiC growth 2025-26 11.4%; 81.4% of reserve money
CiC/GDP 12.1% (2015-16); 8.7% (2016-17); 14.4% (2020-21); 12.0% (2025-26)
Currency in circulation, 15 October 2026 ₹43.46 lakh crore (+13.5% yoy)
Issue Offices / chests / small coin depots 19 / 2,599 / 2,119 (end-March 2026)
Note presses Nashik, Dewas (SPMCIL); Mysuru, Salboni (BRBNMPL)
Indent 2025-26 2,810 crore pieces
Security printing cost 2025-26 ₹4,875.2 crore (₹6,372.8 crore in 2024-25)
Counterfeits detected 2025-26 2,29,746 pieces; ₹500 fakes 1,41,907 (+20.5%)
₹2000 notes returned 98.47% (30 April 2026); ₹5,451 crore outstanding
Demonetisation 8 November 2016; SBNs nearly 86% of note value; ₹15.31 lakh crore returned

Exam corner: what to remember

  • Section 22: RBI's sole right to issue notes. Section 26(2): power to demonetise. Section 27: no re-issue of soiled notes. Section 33(2): minimum reserve of ₹200 crore, of which ₹115 crore gold.
  • Coins: government issues under the Coinage Act, 2011; legal tender up to ₹1,000 (₹1 and above) and ₹10 (50 paise).
  • 2025-26 data: banknotes +11.9% value, +10.5% volume; ₹500 = 85.5% of value, 41.2% of volume; ₹10 is second by volume (16.1%).
  • Counterfeits 2025-26: 2,29,746 pieces; ₹500 fakes 1,41,907 (+20.5%); ₹20 fakes +47.4%; only 2.4% found at the RBI.
  • ₹2000: introduced November 2016, printing stopped 2018-19, withdrawal announced 19 May 2023, 98.47% back by 30 April 2026, still legal tender.
  • Demonetisation: 8 November 2016, nearly 86% of note value; CiC fell to about ₹9 lakh crore on 6 January 2017; CiC/GDP fell from about 12% to under 9%.
  • Infrastructure: 19 Issue Offices, 2,599 chests (SBI 1,298), 2,119 small coin depots.
  • Liquidity: rising currency demand drains bank reserves; it drained ₹4.43 lakh crore in 2025-26. Festive months (October–November) are the classic drain.
  • Costs: ₹4,875.2 crore on printing in 2025-26, about ₹1.73 per note on average.

For exam-specific syllabus and pattern details, see our pages for RBI Grade B, SBI PO and IBPS PO.

Test yourself

At end-March 2026, what share of the value of banknotes in circulation was accounted for by ₹500 notes?

  • (a) 41.2%
  • (b) 65.4%
  • (c) 85.5%
  • (d) 95.0%
Show answer

Answer: (c) ₹500 notes were 85.5% of value but only 41.2% of volume, according to the RBI Annual Report 2025-26.

Under Section 33(2) of the RBI Act, the minimum value of gold and foreign securities that the Issue Department must hold is:

  • (a) ₹115 crore, all in gold
  • (b) 40% of notes issued
  • (c) ₹400 crore, of which ₹200 crore in gold
  • (d) ₹200 crore, of which at least ₹115 crore in gold
Show answer

Answer: (d) The minimum reserve system requires ₹200 crore of gold and foreign securities together, with gold at least ₹115 crore.

Which section of the RBI Act forbids the RBI from re-issuing torn, defaced or excessively soiled notes?

  • (a) Section 22
  • (b) Section 24
  • (c) Section 27
  • (d) Section 38
Show answer

Answer: (c) Section 27 is the legal basis of the Clean Note Policy; Section 22 is the sole right of issue, 24 covers denominations and 38 covers coins.

At end-March 2026 there were ₹41,23,995 crore of banknotes in 17,13,215 lakh pieces. The average value of a banknote is closest to:

  • (a) ₹24
  • (b) ₹241
  • (c) ₹415
  • (d) ₹2,407
Show answer

Answer: (b) ₹41,23,995 crore = ₹4,12,39,950 lakh; divided by 17,13,215 lakh pieces gives about ₹241.

According to the RBI's press release of 1 May 2026, what share of the ₹2000 notes in circulation on 19 May 2023 had been returned by 30 April 2026?

  • (a) 98.47%
  • (b) 97.62%
  • (c) 99.12%
  • (d) 100%, after which they ceased to be legal tender
Show answer

Answer: (a) ₹5,451 crore of ₹3.56 lakh crore was still outstanding, and the notes continue to be legal tender.

Counterfeit ₹500 notes detected rose from 1,17,722 in 2024-25 to 1,41,907 in 2025-26. The increase is about:

  • (a) 5.7%
  • (b) 17.0%
  • (c) 24.2%
  • (d) 20.5%
Show answer

Answer: (d) (1,41,907 − 1,17,722) ÷ 1,17,722 = 24,185 ÷ 1,17,722 = 20.5%; 5.7% is the rise in all counterfeits.

Under the RBI's Master Direction on counterfeit notes, an FIR must be filed immediately when a bank detects in a single transaction:

  • (a) any counterfeit note
  • (b) five or more counterfeit notes
  • (c) counterfeit notes worth over ₹10,000
  • (d) ten or more counterfeit notes
Show answer

Answer: (b) Up to four pieces go in a monthly consolidated report to the police; five or more in one transaction require an FIR.

According to the RBI's Annual Report for 2016-17, currency in circulation at end-March 2017, after demonetisation, was about what share of GDP?

  • (a) 4.4%
  • (b) 8.8%
  • (c) 12.2%
  • (d) 14.4%
Show answer

Answer: (b) It fell from 12.2% to 8.8% (8.7% on today's revised GDP); 14.4% was the pandemic peak of 2020-21.

During the festive season, the public withdraws large amounts of cash from banks. Other things equal, the effect on banking system liquidity is:

  • (a) liquidity rises because deposits are converted to cash
  • (b) no effect, because cash is still money
  • (c) liquidity falls because banks' balances with the RBI fall
  • (d) the CRR automatically falls
Show answer

Answer: (c) A rise in currency in circulation is a drain on bank reserves, which is why the RBI may need to inject liquidity before Diwali.

How many currency chests were there in India at end-March 2026, according to the RBI Annual Report 2025-26?

  • (a) 2,119
  • (b) 2,599
  • (c) 2,691
  • (d) 4,211
Show answer

Answer: (b) There were 2,599 chests (SBI ran 1,298); 2,119 is the number of small coin depots and 2,691 was the February 2025 count.

Further reading

Sources