Stochastic Forecasting of Denominational Requirement and Replacement of Currency in India

A stochastic model has been developed to generate optimal transactions of various sizes based on the size-distribution of the base year and the movement of currency in transactions either on demand or in exchange, being viewed as the stochastic process and the application of reliability theory to evaluate the economic replacement of various denominations of currency. Life distribution for the currency has also been introduced to compute the average requirement of the amount of various denominations to constitute the denominational composition of currency for the Indian economy in 1990-91 and to forecast such composition upto 1999-2000 along with replacement of invalid notes of various denominations and the results have been found to be fairly encouraging.