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Banknote Life in India: A Survival Analysis Approach

Author

Listed:
  • Anirudh Tagat

    (IITB-Monash Research Academy
    Monash University)

  • Mehmet Özmen

    (University of Melbourne)

  • Gregory Markowsky

    (Monash University)

Abstract

India’s currency-to-GDP ratio indicates a strong and persistent demand for cash. Despite the withdrawal of two high-value banknotes in 2016 and the recent economic contraction due to the COVID-19 pandemic, cash continues to rule in India. Although there is extensive work on the demand for cash in India, relatively little is known about the quality and supply of banknotes. This paper provides an overview of currency management policies in India using publicly available annual aggregate issuances and disposals data from the Reserve Bank of India (RBI). We model the life of a banknote using survival analysis models, finding that low-value banknotes (INR 10 and 20) have a median life of 4–5 years. The estimates of longevity of a banknote are significantly associated with velocity of circulation as well as exogenous shocks. We demonstrate the value of survival analysis methods in informing currency management policies in India and providing avenues for future work in this domain.

Suggested Citation

  • Anirudh Tagat & Mehmet Özmen & Gregory Markowsky, 2024. "Banknote Life in India: A Survival Analysis Approach," Journal of Quantitative Economics, Springer;The Indian Econometric Society (TIES), vol. 22(2), pages 519-545, June.
    • Handle: RePEc:spr:jqecon:v:22:y:2024:i:2:d:10.1007_s40953-024-00390-1
    DOI: 10.1007/s40953-024-00390-1
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Banknotes; Banknote life; Hazard rates; Currency management; Central banks;
    All these keywords.

    JEL classification:

    • C41 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Duration Analysis; Optimal Timing Strategies
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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