Our country is currently going through the biggest economic change in its history. After Prime Minister Modi announced demonetization of ₹500 and ₹1000 notes last month, the country has been hit hard. The issue has become a heated subject with differing view points on the matter.
Apart from devaluing the old currency notes, a ₹2000 note has also been introduced. However, if we look at the issue from a scientific point of view, a ₹200 note would have been much better for the life of consumers in India. We recently came across an article on MoneyLife, by Ravi Abhyankar, that talks about this theory at length.
When anything is mass produced, it goes through a process called industrial design. These products could be anything from electronic screens (for a phone, computer or TV) to garments. They are always made in a set of fixed sizes. So you would always see mobile phone screens coming in sizes like 4-inch, 4.5-inch or 5-inch, or something like these. And most clothing items come in even numbered sizes. You might want a 51-inch television screen, but they usually come in 50-inches and 52-inches.
In the 1870s, a French engineer, Charles Renard, proposed a system called preferred numbers. The idea was to use a limited set of numbers but cover a wide range efficiently. He proposed a series based on the 1-2-5 format. This series helped the French Army cut down the number of airship ropes in their inventory from 425 to 17.
The same series is used as an international standard for minting currency. Usually, you see currency in denominations of 1, 2, 5, 10, 20, 50, 100, 200, 500, 1000 and so on. The thing about this series is that all the numbers are 2 or 2.5 times the previous number. Thus, they are close enough but cover a wide range of numbers. For example, to create any multiple of 100, you would need a maximum of three numbers from the series (900=500+200+200, 800=500+200+100).
Now the Indian currency had all these notes except the ₹200 note. According to the Renard series, the ideal ratio for consecutive numbers should be 1:2 or 1:2.5. However, in the case of India, the ratio was at an inefficient 1:5. The large gap between 100 and 500 causes a lot of inconvenience. And currently, because the new ₹500 note is rarely available, the ratio, effectively is an even more unmanageable 1:20. And so, not surprisingly, it’s hard to get change for a ₹2000 note. And thus, there are so many people who have the new ₹2000 note but are unable to make small purchases worth a few hundred.
Now, we understand that the government wants our country to be a cashless economy, but they need to understand that it is not happening in the near future. And a ₹200 note would have gone a long way in ensuring the cash transactions went on smoothly. Also, this is not based on opinions or political views. This is purely mathematical. Before taking a step as huge as this one, you expect governments to at least take basic numerical science into account.
And you can’t argue with science.