Tags: - Quick Facts For Prelims
- GS Paper - 3
Why in News?
Nearly six years and two months after the government announced demonetisation in 2016, currency with the public is at a new high (74% increase from the days before demonetisation was announced).
- Currency with the public is arrived at after deducting cash with banks from total Currency in Circulation.
- Cash in the system has been steadily rising, even though the government and the Reserve Bank of India (RBI) pushed for a “less cash society”, digitisation of payments and slapped restrictions on the use of cash in various transactions.
What is Currency in Circulation?
- Currency in circulation refers to cash or currency within a country that is physically used to conduct transactions between consumers and businesses.
- Currency in circulation is an important component of a country's money supply.
- Monetary authorities of central banks pay attention to the amount of physical currency in circulation because it represents one of the most liquid asset classes.
- Currency in Circulation includes notes in circulation, rupee coins and small coins.
- The RBI has the sole right to issue currency notes. The Government of India is the issuing authority of coins and supplies coins to the Reserve Bank on demand.
What is Money Supply?
- The total stock of money in circulation among the public at a particular point of time is called money supply.
- It needs to be noted that total stock of money is different from total supply of money.
- Supply of money is only that part of total stock of money which is held by the public at a particular point of time.
- The circulating money involves the currency, printed notes, money in the deposit accounts and in the form of other liquid assets.
- RBI publishes figures for four alternative measures of money supply, viz. M1, M2, M3 and M4.
- M1 = CU + DD
- M2 = M1 + Savings deposits with Post Office savings banks
- M3 = M1 + Net time deposits of commercial banks
- M4 = M3 + Total deposits with Post Office savings organisations (excluding National Savings Certificates)
- CU is currency (notes plus coins) held by the public and DD is net demand deposits held by commercial banks.
- The word ‘net’ implies that only deposits of the public held by the banks are to be included in money supply.
- The interbank deposits, which a commercial bank holds in other commercial banks, are not to be regarded as part of money supply.
- M1 and M2 are known as narrow money. M3 and M4 are known as broad money.
- These gradations are in decreasing order of liquidity.
- M1 is most liquid and easiest for transactions whereas M4 is least liquid of all.
- M3 is the most commonly used measure of money supply. It is also known as aggregate monetary resources.
UPSC Civil Services Examination, Previous Year Questions (PYQs)
Q1. Which of the following measures would result in an increase in the money supply in the economy? (2012)
- Purchase of government securities from the public by the Central Bank
- Deposit of currency in commercial banks by the public
- Borrowing by the government from the Central Bank
- Sale of government securities to the public by the Central Bank
Select the correct answer using the codes given below:
(a) 1 only
(b) 2 and 4 only
(c) 1 and 3 only
(d) 2, 3 and 4
Ans: (c)
- In case of public depositing money with the central bank and government selling its securities to the public, the money supply in the economy decreases. Hence, 2 and 4 are not correct.
- Ways to Increase the Money Supply in the Economy
- Printing more money;
- Reducing interest rates;
- Quantitative easing;
- Reduce the reserve ratio for lending;
- Central Bank buying government securities; hence, 1 is correct.
- Expansionary fiscal policy;
- The borrowing by the government from the Central Bank also results in an increase in money supply in the economy. Hence, 3 is correct. Therefore, option (c) is the correct answer.
Q2. If you withdraw `1,00,000 in cash from your Demand Deposit Account at your bank, the immediate effect on aggregate money supply in the economy will be (2020)
(a) to reduce it by `1,00,000
(b) to increase it by `1,00,000
(c) to increase it by more than `1,00,000
(d) to leave it unchanged
Ans: (d)
Source: IE
FAQs
Currency in circulation is all of the money that has been issued by a country's monetary authority, minus cash that has been removed from the system. Currency in circulation represents part of the overall money supply, with a portion of the overall supply being stored in checking and savings accounts.
How much actual US currency is in circulation? ›
US Currency in Circulation is at a current level of 2.353T, down from 2.356T last week and up from 2.335T one year ago. This is a change of -0.12% from last week and 0.78% from one year ago.
What is currency in circulation deposits? ›
More broadly, money in circulation is the total money supply of a country, which can be defined in various ways, but always includes currency and also some types of bank deposits, such as deposits at call.
How many currencies are currently in circulation? ›
There are 180 currencies recognized as legal tender in United Nations (UN) member states, UN General Assembly non-member observer states, partially recognized or unrecognized states, and their dependencies.
Why is currency in circulation important? ›
Money in circulation refers to the total amount of money available within a society for transactions and economic activities, which plays a crucial role in influencing social power dynamics and economic interactions among individuals.
How much is a $2 bill worth today? ›
“On June 25, 1776, the Continental Congress authorized issuance of the $2 denominations in “bills of credit” for the defense of America,” the U.S. Currency Education Program said. Odds are your $2 bill is worth $2, but it doesn't hurt to check.
How much US money exists? ›
As of September 20, 2023, the Federal Reserve estimated that the total amount of currency in circulation was approximately US$2.33 trillion.
What is the US dollar backed by? ›
Prior to 1971, the US dollar was backed by gold. Today, the dollar is backed by 2 things: the government's ability to generate revenues (via debt or taxes), and its authority to compel economic participants to transact in dollars.
What happens when money is out of circulation? ›
Once currency is labeled as unfit and removed from circulation, the bills are shredded and recycled are turned into compost. What happens to shredded currency depends on the Federal Reserve office.
How many $10,000 dollar bills are there? ›
There are estimates that fewer than 350 $10,000 bills remain in circulation today. Further, there are only eight known 1928 bills known to still exist, two of which are owned by museums. This has vastly inflated the value of the bill.
American paper currency comes in seven denominations: $1, $2, $5, $10, $20, $50, and $100. The United States no longer issues bills in larger denominations, such as $500, $1,000, $5,000, and $10,000 bills. But they are still legal tender and may still be in circulation.
What is the cheapest currency in the world? ›
What banks are going to digital currency? ›
The pilot will test how banks using digital dollar tokens in a common database can speed up payments. Participating banks include BNY Mellon, Citi, HSBC, Mastercard, PNC Bank, TD Bank, Truist, U.S. Bank and Wells Fargo.
How much USD is in circulation? ›
The total value of currency in circulation in the United States reached approximately 2.3 trillion U.S. dollars in 2023, marking a slight increase from the previous year.
What is the top currency in circulation? ›
What are the most traded currencies in the world?
- US dollar (USD)
- Euro (EUR)
- Japanese yen (JPY)
- Pound sterling (GBP)
- Australian dollar (AUD)
- Canadian dollar (CAD)
- Swiss franc (CHF)
- Chinese renminbi (CNH)
If money doesn't circulate fast enough, there may be a lack of spending in the economy, which can lead to recession and unemployment.
How much US currency is actually printed? ›
There is about $2 trillion worth of U.S. currency in circulation. The Bureau of Engraving and Printing, which prints all U.S. currency, prints about $500 million in currency a day, or $180 billion per year. Over two years, that's about $360 billion, or 18% of all the currency in circulation.
What percentage of US currency is held outside of the US? ›
The estimates suggest that more than 60% of all U.S. bills and nearly 80% of $100 bills are now overseas—up from 15% to 30% around 1980.
What is the most circulated currency in the world? ›
US dollar (USD)
It is the number one most traded currency globally, accounting for a daily average volume of US$2.9 trillion. There are several reasons for its popularity.
How long does US currency stay in circulation? ›
How long is the lifespan of U.S. paper money?
| Denomination | Estimated Lifespan* |
|---|
| $10 | 5.3 years |
| $20 | 7.8 years |
| $50 | 12.2 years |
| $100 | 22.9 years |
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