QuestionHow are banknotes put into circulation by the Bank? How is the amount of banknotes to be issued decided?

Banknotes are put into circulation when financial institutions withdraw money from their current accounts at the Bank to provide for payment to individuals and firms. This process is referred to as the issuance of banknotes.

Following this process, individuals and firms can obtain banknotes by withdrawing cash from their accounts at financial institutions. Banknotes are then used to purchase goods and services, tax payments, and for many other purposes.

The amount of banknotes issued depends on the level of demand for banknotes in the economy.

The demand for banknotes rises when, for example, there is increased economic activity, that is, when people spend more and firms increase small-value transactions. Banknotes are financial assets with an extremely high degree of safety and liquidity, even though they earn no interest. Therefore, demand for banknotes can also be affected by factors such as yields on other financial assets and developments in the financial system.