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LATEST NEWS UPDATES | Big-note hoarding habit contagious

Big-note hoarding habit contagious

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published Published on Apr 19, 2018   modified Modified on Apr 19, 2018
-The Telegraph

Mumbai: Research by the State Bank of India suggests currency notes of higher denominations, especially Rs 2000 notes, are "not getting adequately circulated in the economy" and the tendency to hoard cash may be having a domino effect.

An SBI research report tries to provide a theoretical basis for the sudden evaporation of cash in some states by linking the phenomenon to the sharp decline in "income velocity" in the financial year that ended on March 31. Income velocity signifies the number of times that a currency note changes hands.

"Our internal estimates suggest that in the states like Bihar, Gujarat and southern states, the income velocity is far less than the national average. The other states have also started facing issues as there has been a 'domino effect' whereby any possible tendency to hoard cash may have spread to other states," the report said.

The report by the SBI, which is fast becoming an apologist for the beleaguered Narendra Modi government that has been battling criticism for being unable to foresee the crisis, trots out other reasons for the situation that has revived memories of the after-effects of the demonetisation in November 2016.

The report says a Bullwhip Effect is also partly to blame for the sudden spurt in demand for cash in the country.

The resurgence in the economy triggered heightened economic activity at the start of the fourth quarter of 2017-18 (January-March), igniting demand for working capital in cash-dependent sectors of the economy that, in turn, spurred greater usage of cash for transactional purposes, according to the report.

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The Telegraph, 19 April, 2018, https://www.telegraphindia.com/india/big-note-hoarding-habit-contagious-224457?ref=india-new-stry


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