Market expert Ajay Bagga praised the Reserve Bank of India (RBI) for its effective management of the withdrawal of ₹2,000 notes. He noted that the current rate of returned notes to banks could significantly boost the liquidity of the banking system.

What Happened? Bagga took to Twitter early Friday to discuss the ongoing withdrawal of ₹2000 notes, revealing that so far, banks have received back ₹1,80,000 crores, accounting for half of these notes in circulation.

He referred to the RBI Governor’s statement at a recent press conference where the Governor stated that banks had deposited 85% of these returned notes into accounts, while they exchanged the remaining 15%. Bagga highlighted that this return of notes is significantly enhancing the liquidity of the banking system.

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Bagga further speculated that if the current rate of note return persists, the banking system could see an influx of approximately ₹3,00,000 crores. He believes that such a development would not only reduce the amount of cash in circulation but also harness the power of the money multiplier effect on these new liquidity additions.

He commended the RBI for effectively managing this complex process.

Money multiplier explained: The money multiplier effect is like a game of pass-it-on with money. When you deposit money in a bank, the bank lends some of it to others. They spend it, and it ends up in another bank, which lends it out again, and so on, making the original money amount seem bigger.

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