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India needs a Rs200 note, not a Rs2,000 note and the science behind it
Ravi Abhyankar 01 December 2016
Economy & Nation
What should be the size of the Apple Mac screen? Technically, Apple can produce hundreds of different sizes, but they have settled on four: 13.3 inch, 15.4 inch, 21.5 inch, and 27 inch. The four are spaced close enough, and far enough to satisfy most Apple consumers. 
 
Industrial design has a mathematical concept called preferred numbers. Way back in 1870s, a French engineer Charles Renard proposed a system based on logarithmic scale to produce a limited number of sizes to cover a wide range. A variant of that internationally accepted system is the 1-2-5 series, which is widely used in minting coins and printing notes.
 
The 1, 2, 5, 10, 20, 50, 100, 200, 500, 1000… is that series. The beauty of the series is that any adjacent numbers differs by a product of 2 or 2.5. As a result, they are spaced close enough but cover a wide ground. How? Let us look at an Indian street vendor who still measures the fruit he sells on old-fashioned scales. If he has weights of 100gms, 200gms, 500gms and 1 kg, he can give you fruits in multiples of 100gms by using a maximum of three weights. E.g. 800 (500+200+100), 900 (500+200+200). In no case does the seller need to use four weights. If you must follow the decimal system, this is an extremely efficient system. 
 
Now look at the Indian banknotes. Until 8 November 2016, India had currency (notes or coins) with a denomination of 1, 2, 5, 10, 20, 50, 100, 500 and 1000 rupees. Below Rs100, transactions were efficient. The gap between Rs100 and Rs500 (1:5) has been too large. Over the last few years, it has produced inconvenience (certainly) and contributed to inflation (probably). It is well known that bigger values and larger gaps can increase prices. In January 2002, when most European currencies converted to Euro, prices rose on many goods as a result of rounding up. This rounding up phenomenon has made coins below one rupee disappear from India. 
 
I had hoped that Reserve Bank of India (RBI) would use the demonetization to introduce a Rs200 note. That would have bridged the gap between Rs100 and Rs500 and made the cash economy efficient. What we got instead was a Rs2,000 note. 
 
With the death of the Rs1,000 note, the new ratio of Rs500-Rs2,000 (1:4) to follow the already inefficient Rs100- Rs500 (1:5) is not sustainable, now or in future. And since the new Rs500 note is as yet rarely available, the ratio currently is Rs100-Rs2000 (1:20). When the maximum prescribed ratio for efficiency is 1:2.5, in practice we have 1:20, which is catastrophic. That is why; we have millions of people with wads of Rs2,000 notes unable or unwilling to make a small purchase of Rs200.
 
This is pure and simple mathematical illiteracy. I expect the Reserve Bank to be aware of the Renard series, which is an ISO standard. Politics and economics can be subject to opinions, but not mathematics. You invite disaster when you do not follow the basic number rules. 
 
What India needs to do urgently is to introduce an Rs200 note. And if Rs1,000 is to be permanently abandoned, then to withdraw Rs2,000 as well. For efficient transactions, the ratio in the 1-2-5 series must never exceed 2.5. 
 
(Ravi Abhyankar is an independent analyst and strategic advisor.)
 
Comments
Anoop Sharma
9 years ago





I had posted on 11th Nov 2016 on Facebook "I have started this and you all will do this" If you Agree Please Share......(This Is in my mind)
In India we have 1 rupee 2 rupee 5 rupee coins /// we have 10 rupee 20 rupee 50 rupee note/// 100 rupee ???......... then 500 rupee.
200 rupee note missing from the line which should be there for better exchange
If Agree please share so that govt Print 200 rupee note insted 2000 rupee note which is hardly required
"Share karo 200 ka note lana hai"
Anoop Kumar Sharma.
Reply
Gaurav Aggarwal
Replied to Anoop Sharma comment 9 years ago
Hahahaha I posted in 2013
4years back all these points when no one was even dreaming of it.
So need not panic dear.
Also I recieved a letter from RBI saying they have noted this suggestion and may work it out in April2013.
https://m.facebook.com/story.php?story_fbid=488430254555819&id=100001665450912
Reply
Gaurav Aggarwal
Replied to Anoop Sharma comment 9 years ago
Hahahaha I posted in 2013
4years back all these points when no one was even dreaming of it.
So need not panic dear.
Also I recieved a letter from RBI saying they have noted this suggestion and may work it out in April2013.
https://m.facebook.com/story.php?story_fbid=488430254555819&id=100001665450912
Reply
Sunil Harlalkaa
9 years ago
There is a Golden Ratio of everything. Renard series is one of them. The govt will launch Rs 200 Rs note by September 2017. This launch will be to save on printing and transportation costs. Yes the govt wants to increase cashless transactions but Rs 200 would be launched too .
In 2018 a Rs 5000 would be launched ( 2.5 of Rs 2000 )
In 2021 Rs 10,000 would be launched ( 2 times of Rs 5000)
Only time will tell
Reply
Sunil Harlalkaa
9 years ago
There is a Golden Ratio of everything. Renard series is one of them. The govt will launch Rs 200 Rs note by September 2017. This launch will be to save on printing and transportation costs. Yes the govt wants to increase cashless transactions but Rs 200 would be launched too .
In 2018 a Rs 5000 would be launched ( 2.5 of Rs 2000 )
In 2021 Rs 10,000 would be launched ( 2 times of Rs 5000)
Only time will tell
Reply
Sunil Harlalkaa
9 years ago
There is a Golden Ratio of everything. Renard series is one of them. The govt will launch Rs 200 Rs note by September 2017. This launch will be to save on printing and transportation costs. Yes the govt wants to increase cashless transactions but Rs 200 would be launched too .
In 2018 a Rs 5000 would be launched ( 2.5 of Rs 2000 )
In 2021 Rs 10,000 would be launched ( 2 times of Rs 5000)
Only time will tell
Reply
Prateek Dalmia
9 years ago
No doubt,it will cause efficient working of the economy.
There are many economists in our country. All have brief knowledge of ecomomics. Even our PM Namo also consulted to an economist before taking this step.
Many of them are supporting Namo and are saying its a nice move of the government to give a glimpse of better tomorrow while other are against it.
Whom to believe??
Reply
Rajesh Acharya
9 years ago
The logic is sound but misses a very important point. The GOI is trying to do away with "cash based economy" and leap-frog to the digital, trackable world of cashless. This "₹200" or other filler notes would defeat the purpose. The strategy of GOI should be to keep "cash hoarders / tax evaders / criminals" guessing and every few years demonetizing notes, if they don't learn their lessons!
Reply
Gaurav Aggarwal
9 years ago
https://m.facebook.com/story.php?story_fbid=488430254555819&id=100001665450912

See what I told RBI in 2013
Reply
Ravi Khot
9 years ago
Has his suggestions reached RBI ? A friend has offered to help and therefore needs the email ID of Ravi Abhyankar.
Reply
Pankaj Jangid
9 years ago
One of the readers commented on bringing back Mr. Raghuram. While This article is not relevant to this matter but just want to let him know that RBI had proposed a ₹5000 note under Mr. Raghuram.
Reply
Rajesh Gupta
9 years ago
bring back raghu ram rajan ( R3) at the post of RBI governor is the only solution. there is always a difference between politician mind and academician mind. one can not perform both function at a time. do not try to make India equal to america or Europe in just 5 yrs time span.
Reply
Rajesh Gupta
9 years ago
bring back raghu ram rajan ( R3) at the post of RBI governor is the only solution. there is always a difference between politician mind and academician mind. one can not perform both function at a time. do not try to make India equal to america or Europe in just 5 yrs time span.
Reply
Dilip SK
9 years ago
I think it was intentional to create the gap so that people have a problem. Lack of availability of cash will push them to go cashless
Reply
Pankaj Jangid
Replied to Dilip SK comment 9 years ago
Probably, this is true. And probably ₹2000 note will go away in very short time.
Reply
Pradeep Kumar M Sreedharan
Replied to Dilip SK comment 9 years ago
My line thinking too.
Reply
Anurag Kulkarni
9 years ago
Hi How can I get in touch with the author?
Reply
Pradeep Kumar M Sreedharan
9 years ago
Besides this, I wish RBI would ensure interoperability of various digital Wallets, for reasons obvious.
Reply
Sreedhar Souparnika
9 years ago
The damage has already happened and now it is time to think of alternate solutions to reduce the difficulties faced by common man. As suggested it would have been better to introduce Rs.200/- or Rs.250/- denomination currency notes instead of high value note of Rs.2000/- which has created the confusion and matters becoming worse for the common man. Yet another suggestion is to introduce Coins for all denomination currencies of Rs.20/- and below. Though the step for demonotisation was welcomed, I think Mody was ill-informed of the possible consequences by the bureaucrats in Finance ministry and RBI. Or even they do not want to be on the wrong side of Mody's books. Urjit Patel took over only a few weeks back and may crave for a post in the next ministry. What happened to the learned economists in Finance ministry and and DBOD ?. Now the worst is yet to come unless immediate proactive steps are not being initiated . To err is human but not with the lives of innocent millions in the country.
Reply
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