Currency in use hits pre-note ban levels

Others believe the surge could be temporary due to elections in various states this year.

MUMBAI: Currency in circulation had contracted to almost half the level of November 4 immediately after New Delhiannounced a ban on the old Rs 500 and Rs 1,000 bills to tackle corruption, black money and terror financing. By December 30, 2016, the last day to surrender the extinguished money, the cash in circulation amounted to Rs 8.93 lakh crore.

As an immediate reaction, there was a spike in various digital channels — internet and mobile banking, cards and other new platforms like UPI. Of late, the pace of the switch to digital transactions is slowing. Since the beginning of January this year, currency in circulation has picked up sharply by around Rs 1.2 lakh crore.

Nearly 16 months after the government banned high-denomination bills that had overnight caused the withdrawal of about half the cash in the financial system, currency in circulation has again crossed the levels last seen before the note-swap was enforced.

The jury is still out on whether the November 8, 2016, move has helped tilt payments toward the digital mode. Total currency in circulation is Rs 18.13 lakh crore as of March 9, according to the latest Reserve Bank of India (RBI) data. This compares with Rs 17.97 lakh crore as on November 4, 2016.

There are several explanations being offered for this trend, though not all are willing to reject that digitisation of payments has not picked up. Some attribute the surge in cash to a revival in rural economic activity, which is predominantly cash-based.

Others believe the surge could be temporary due to elections in various states this year. Election funding is still cash based. “Given that many state elections are scheduled for 2018, growth in currency in circulation is likely to remain robust,” said SK Ghosh, group chief economic advisor, State Bank of IndiaBSE -1.13 %. “This in turn would put pressure on bank deposits as the circulating cash represents a leakage from the banking system.”

[“Source-economictimes”]