The demonetization of the ₹500 and ₹1,000 high-denomination banknotes had no discernible impact on the currency in circulation (CIC) in the country, which has soared almost 83% since its announcement on November 8, 2016.

The Supreme Court upheld the government’s decision on demonetization on Monday.

On November 8, 2016, Prime Minister Narendra Modi had announced the demonetization of the old ₹1000 and 500 banknotes and one of the main aims of this unprecedented move was to promote digital payments and curb the flow of black money .

According to Reserve Bank data, the CIC in value fell from ₹17.74 lakh crore on November 4, 2016 to ₹32.42 lakh crore on December 23, 2022.

However, shortly after the demonetization, the CIC precipitously fell to a low of around ₹9 lakh crore on 6 January 2017, nearly 50% from ₹17.74 lakh crore on 4 November 2016.

This was the lowest in six years following the scrapping of old 500/1,000 banknotes which made up about 86% of total banknotes at the time.

Compared to January 6, 2017, the CIC saw more than 3 times or 260% jump, while from November 4, 2016, it saw a jump of around 83%.

With remonetization accelerating, the CIC progressed week after week and reached 74.3% of the peak at the end of the year. Then about 85% of its pre-demonetization peak at the end of June 2017.

Demonetization led to a decline in CIC of around ₹8,99,700 crore (until 6 January 2017) led to a sharp increase in excess liquidity with the banking system, equivalent to a reduction in the cash reserve ratio (percentage of deposits parked with the RBI) of approximately 9%.

This posed a challenge to the Reserve Bank’s liquidity management operations and the central bank used instruments, in particular reverse auctions under the Liquidity Adjustment Facility (LAF) window to absorb excess liquidity in the banking system.

The CIC rose to ₹32.42 lakh crore at the end of December 23, 2022, from ₹31.33 lakh crore at the end of March 31, 2022.

Since the demonetization, the CIC has experienced growth outside the year of demonetization. The CIC contracted by 20.18% to ₹13.10 lakh crore at the end of March 2016 from ₹16.42 lakh crore at the end of March 31, 2015.

In the following year of demonetization, it jumped 37.67% to ₹18.03 lakh crore and jumped 17.03% to ₹21.10 lakh crore at the end of March 2019 and 14.69% to ₹24.20 lakh crore end of 2020.

Over the previous two years, the growth rate of CIC in value terms was 16.77% to ₹28.26 lakh crore on March 31, 2021 and 9.86% to ₹31.05 lakh crore by the end of March 31, 2021. March 2022.

Stating that the decision-making process was not flawed, the Supreme Court in a majority verdict of 4 to 1 upheld the government’s 2016 decision to demonetize the ₹1,000 and ₹500 notes.

There must be great restraint in economic policy and the court cannot supplant the wisdom of the executive with judicial review of its decision, said a five-judge bench of the Supreme Court Constitution, led by Judge SA Nazeer.

Judge B.V. Nagarathna disagreed with the majority judgment on the issue of the Centre’s powers under Section 26(2) of the RBI Act and said that the removal of ₹500 and ₹1000 series banknotes should take place do so through legislation and not through notification. .

“Parliament should have discussed the Demonetization Act, the process should not have been through a Gazette Notification. Parliament cannot stand aside on a matter of such importance so critical for the country,” Judge Nagarathna said.

She also said that there was no independent application of the spirit of the Reserve Bank of India (RBI) and only its opinion was sought, which cannot be considered a recommendation.

The bench, which also includes Justices BR Gavai, AS Bopanna and V. Ramasubramanian, said the Center’s decision-making process could not be flawed as there had been consultations between the RBI and the Union government. .

The Supreme Court judgment came on a batch of 58 motions challenging the demonetization exercise announced by the Center on November 8, 2016.