Here's the real reason why your ATM has more Rs 2,000 & less of the new Rs 500 notes

MUMBAI: At the heart of the cash crunch caused by demonetisation is the tale of two notes — Rs 500 and Rs 2,000. Why is there a deluge of the pink Rs 2,000 bills and a scarcity of the dollar-lookalike Rs 500?

The answer, according to RBI circles, is simple: Rs 2,000 notes are printed in the press run by the Reserve Bank of India at Mysore while Rs 500 notes are flowing out of government-owned note printing presses located in Nashik (Maharashtra) and Devas in Madhya Pradesh. (The fourth printing press in Salboni, West Bengal, and controlled by RBI, predominantly prints Rs 100 notes.)

Angry RBI officials, upset about a widely shared perception that the central bank has been belittled by the government's handling of the demonetisation drive, told ET that they “have no control over the supply of Rs 500 notes”. "Why should we be blamed? The government is taking all the decisions. We are simply coming out with notifications after statements by finance ministry officials,” said an RBI old-timer requesting anonymity. The poor supply is an outcome of the government grossly misjudging the transactional importance of cash and overemphasising on the exchange requirement.

Moreover, the printing of Rs 2,000 rupee notes started well before the new Rs 500 notes came out of the government press. As per RBI data, there were around 9,026 crore pieces of currency in circulation before demonetisation with Rs 500 and Rs 1,000 notes accounting for a quarter of this. According to a calculation done by former finance minister P Chidambaram, it would take about seven months to replace the notes. “They are trying to race against time.

There were 1,570 crore notes of one denomination and 530 crore notes of another denomination – a total of 2,100 crore notes. The capacity of printing presses is 300 crore notes per month. If they wanted to replace 2,100 crore notes with the equivalent denomination notes, it would take seven months to print them,” Chidambaram said in a TV interview.

Senior RBI officials said that the central bank's printing facilities went on full steam in printing notes of higher denomination on the hope that the process of replacing invalid notes would be faster as fewer notes have to be given out by banks and RBI offices in exchange for same number of old, delegalised notes.

What the government as well as RBI overlooked was the hurdle that would be posed by an excess Rs 2,000 bills and inadequate supply of new Rs 500 notes in the way of regular transactions. It encouraged individuals, traders and shopkeepers to hoard the smaller denomination notes. Thus, even as bank tellers, ATMs and pointof-sale machines are releasing 2,000 notes, many kirana shops, domestic helps and hail-a-cab operators are reluctant to accept the new legal tender as they are unwilling to part with their Rs 100 and Rs 500 notes. The dearth of Rs 500 notes is despite the fact that the printing presses are working in double shifts.

“There is also the problem of logistics…. There may be inventory of currency but moving notes from one destination to another — from the printing press to currency chest or from currency chest to bank branches and ATMs — needs high level of security. Manpower is an issue, and quality of road can delay supply,” said another RBI official.