10 Years After Demonetisation: Cash Use and Counterfeiting

Why in the News?

On 8 November 2016, Prime Minister Narendra Modi announced demonetisation to curb black money, corruption, and counterfeiting. Ten years later, RBI data shows cash usage remains steady while counterfeit ₹500 notes have increased.

Key Highlights

• Demonetisation withdrew 86% of India's currency to curb black money, corruption, and counterfeiting.

• Cash with the public rose from 11.9% of GDP in 2015-16 to 12.1% in 2025-26.

• UPI transactions reached 91% of GDP in 2025-26, but cash usage remains high.

• Counterfeit notes detected per crore fell from 70.1 in 2015-16 to 13.4 in 2025-26.

• Fake ₹500 notes increased from 0.3 per crore in 2016-17 to 20.1 in 2025-26.

• Detection of fake ₹2,000 notes rose after RBI began withdrawing them in 2023.

Know the Basics

• Demonetisation: Withdrawal of currency notes from circulation to curb black money, corruption, and counterfeiting.

• Unified Payments Interface (UPI): A real-time payment system enabling instant money transfers between bank accounts via mobile apps.

• Counterfeit Notes: Fake currency produced illegally to mimic genuine notes.

• Hawala Trade: Informal money transfer system bypassing official banking channels, often linked to black money.

Detailed Analysis

Cash Usage Remains High Despite Digital Payments

• Currency with the public increased slightly from 11.9% of GDP in 2015-16 to 12.1% in 2025-26.

• UPI transactions grew to 91% of GDP in 2025-26, but this has not significantly reduced cash usage.

Counterfeiting Trends Show Mixed Results

• Overall counterfeit notes detected per crore fell from 70.1 in 2015-16 to 13.4 in 2025-26.

• Fake ₹500 notes rose sharply from 0.3 per crore in 2016-17 to 20.1 in 2025-26.

• Detection of fake ₹2,000 notes increased after RBI began withdrawing them in 2023.

Objectives of Demonetisation and Their Outcomes

• Stated goals included curbing black money, corruption, hawala trade, and terrorism financing.

• Data suggests the objective of creating a less-cash society remains largely unmet.

• Reduction in counterfeit notes across denominations indicates partial success in tackling counterfeiting.

Significance for India

• Understanding demonetisation's impact is crucial for evaluating economic policy effectiveness.

• UPSC could test this topic under economic development or security, linking it to black money and counterfeiting.

• Highlights the interplay between digitalisation and cash usage in India's economy.

• Raises questions about the effectiveness of policy measures against corruption and terrorism financing.

Challenges

• Cash usage remains steady despite significant growth in digital payments like UPI.

• Increase in fake ₹500 notes raises concerns about the security features of redesigned currency.

• Data ambiguity: rise in counterfeit detection could reflect improved monitoring or increased counterfeiting activity.

Way Forward

• RBI: Strengthen currency security features and enhance counterfeit detection mechanisms.

• Government: Promote digital payment adoption through incentives and awareness campaigns.

• Law Enforcement Agencies: Intensify efforts to curb hawala trade and cross-border terrorism financing.

• Policy Researchers: Conduct detailed studies to assess the long-term impacts of demonetisation on corruption and black money.