What factors determine amount of currency in a country?
The RBI factors in inflation, GDP growth, replacement of soiled banknotes and reserve stock requirements, before deciding on how many notes are required.
The currency requirement should align to GDP. There are statistical models that forecast how much currency to be printed. If we print more, rupee looses value and hence inflation. It helps exports as exporters can make more money but makes imports expensive. Also other effects like job creation economic activity can also be controlled through monetary policy. Hence RBI needs to balance all this through decision of how much currency to be printed.
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