This is from IMF
“Large denomination banknotes pose institutional risks. First, they are an important vehicle for money laundering. The larger value of the banknote makes it easier to transport larger amounts of money. As an example, US $1 million in currency in $100 bills weighs 22 pounds, where as one million dollars in €500 notes would weigh less than 3 pounds. Second, large denomination banknotes are more often forged. The U.S. Treasury considered re-issuing a US$500 banknote when the Euro 500 banknotes began circulating.However, after the recognition that such a banknote would fuel worldwide criminals, it was decided not to pursue this option. Third, high denomination banknotes are most likely used for overseas circulation with no supervision from the respective central bank. One estimate for the United States suggests that about 65 percent ($580 billion) of all banknotes are in circulation outside of the U.S. There are a number of countries which are officially dollarized, which could in part explain this high percentage”
This is what WSJ writes in an editorial “cash is dead long live cash ”
The most likely reason for the cash paradox, analysts say: a thriving global underground economy of tax evasion, organized crime and terrorism financing. Digital payments may be faster and more efficient, but cash cloaks transactions in privacy.In a 2015 report titled “Why Is Cash Still King?” Europe’s police agency, Europol, concluded that “while cash is slowly falling out of favor with consumers, it remains the criminals’ instrument of choice.”
And this one from Vivek Kaul ……Since January 2017, the currency in circulation has been increasing every week. This has been happening with the printing presses of the Reserve Bank of India and the government, printing and pumping money into the financial system through banks. Take a look at Figure 1.
As can be seen form Figure 1, the currency under circulation has been going up from January 6, 2017, as the RBI and the government have printed and pumped money into the financial system.
Take a look at Figure 2. It plots the rate at which currency circulation has been increasing week on week since January 6, 2017.
Figure 2 makes for a very interesting reading. The highest increase in the rate of increase in currency circulation came in the period of one week ending January 13, 2017, at 5.9 per cent. Since then the overall trend has been down, with jumps in between. Having said that, the rate of increase in currency circulation has seen a downward trend between March 10 and March 31, 2017.
The rate of increase in currency in circulation for the week ending March 31, 2017, was at the lowest level since January 2017, at 1.7 per cent. What does this mean? It means that the RBI is not releasing currency to the banks at the same pace as it was in the past ( not that cashless transactions have suddenly gone up). The rate of currency release at RBI’s level has come down. And that basically means banks don’t have enough currency/cash to load into ATMs as they had in the past.
This explains why there has been shortage of currency at ATMs. It could also mean that the RBI and the government printing presses are not printing as much currency as they were doing in the past. Why is this happening is something only the central bank and the government can explain.
We know cashless economy has not taken off in the way our government envisaged but by restricting the supply of currency,govt is not going to achieve cashless economy. On the contrary business actitvity could slow down further. The IMF paper makes a case against large denomination notes and that is why I am still not clear of the rationale for issuing high denomination (2000 rupee) note in India ,but I am getting increasingly convinced that the authorities might restrict the printing and use of 2000 rupee note in near future.