Demonetization, Government of India, India, lockdown, RBI, Stories

Currency in Circulation reached a new high, crossed 27 Lakh Crores


The COVID-19 induced lockdown seems to have pushed people to turn to cash again. As per the latest data available with the RBI, the currency in circulation crossed Rs. 27 lakh crores by the beginning of January 2021, an increase of 22% in the last year. The Cash to GDP ratio is also set to reach a new high in 2020-21.

One of the stated goals of demonetization was to build a less-cash society. In an earlier story, we observed that the cash in circulation more than what it was prior to demonetization. Simultaneously, there has also been an increase in the volume of digital transactions since 2017. However, post the imposition of lockdown due to COVID-19, there has been a fall in the digital transactions for April’2020. This unprecedented period of lockdown & subsequent unlock phases has had an impact on various sectors of the economy including digital transactions. Meanwhile, what has been the impact of these unprecedented times on the currency in circulation? In this story, we take a look at the various trends and indicators relating to currency in circulation. 

Currency in circulation at the end of 2020 is 22% more than last year 

As per the Weekly Statistical Supplement provided by RBI under “Reserve Money Components & Sources”, the total Currency in Circulation as of 01 January 2021 was Rs. 27.7 lakh crores.  By the end of the previous year, the Currency in Circulation (CiC) was Rs.22.7 lakh crores. In other words, the CiC increased by around 22% in one year. 

The yearly growth of the CiC during 2020 is higher than that of the previous two years when it was 12% and 19% respectively. However, the growth seen in the last year is much less than the increase in the CiC during 2017 i.e., the year after Demonetization.

Currency with Public has increase during lock down and after 

Around the time a nationwide wide lockdown was announced, the total currency in circulation was Rs. 24.39 Lakh crores (as of 27 March 2020).  Of this, 96% i.e., Rs. 23.41 lakh crores were “Currency with the Public” and the balance of Rs. 97.5 thousand crores were the Cash with the banks.  As per RBI’s definition, Currency with Public is “Currency in Circulation” minus “Cash with Banks”.

By the end of the year, i.e., as of 18 December 2020, Currency with Public was Rs. 26.82 lakh crores, which is 96.58% of the total currency in circulation. The increase in the CiC and the increase in the proportion of Currency with the public indicates the propensity of the public to retain money in the form of cash.  However, the growth was not uniform throughout the year. 

  • By the end of the first quarter (i.e., 31 March 2020) the CiC increased by Rs. 1.78 lakh crores i.e., by 7.86%. Meanwhile, the Currency with the Public increased by 7.82% (Rs. 1.71 lakh crores). This was the time when a nationwide lockdown was imposed. 
  • By the end of the next quarter, the CiC increased by 8.91% while the Currency with Public increased by 9.22%. Further, the volume of increase in currency with the public was higher than that of the increase in CiC. The increase was more prominent during the 2 months of lockdown period and tapered down by the end of the quarter. (Data as of 03 July 2020) 
  • The ensuing 3 months had a slower growth rate, both for CiC and Currency with Public with 0.18% and 0.13% increase respectively. 
  • However, during the last 3 months of the year, the CiC increased by 0.94 lakh crores. Also, as observed during the lockdown period, the increase in Currency with the Public is higher with 0.96 lakh crores. 

Currency to GDP ratio is estimated to have increased for 2020-21 

Apart from the goal of reduction in the circulation of cash, a lower Currency-GDP ratio is also stated as one of the intended objectives of demonetization. At the time of demonetization (2015-16), the Currency-GDP ratio of India was 12.1%. 

In an earlier story, based on RBI’s information, we have highlighted that post demonetization the ratio fell to 8.7% in 2016-17 but has since increased to reach 11.2% in 2018-19.  As per RBI’s annual report for 2019-20, the Currency-GDP ratio has further increased to 12% i.e. reaching the pre-demonetization levels of 2015-16. 

While the RBI’s annual report for 2020-21 would be available only later in the year, we can estimate this ratio based on available information. As per First Advance Estimates of National Income 2020-21, released on 07 January 2021, the estimated Nominal GDP (at Current Prices) is likely to be Rs. 192.82 lakh crores as against the provisional estimate of Rs. 203.4 lakh crores. The Currency in Circulation at the beginning of 2021 is Rs. 27.7 lakh crores. Based on this, the currency to GDP ratio works out to 14.36%. Even factoring in the fall in estimated GDP compared to the provisional GDP, in which case the Cash to GDP ratio would be around 13.6%. In other words, cash seems to have made a comeback into the system even at greater levels compared to the period before demonetization. 

Data indicates an increase in Currency in Circulation during lockdown

Data from the RBI indicates an increase in the cash with the public over the last year. This is in continuation of a trend observed over the past 4 years post-demonetization, where there has been a gradual increase in the currency in circulation. Data also indicates the increase has compounded during the lockdown meaning people have turned to cash. 

The increasing trend on Currency-GDP ratio and the potential spike this year belies the argument that the increase in currency circulation is due to the expansion of the economy. The uncertainty during the lockdown period might have necessitated people to hold on to cash as a safer option. The higher increase during that period was followed by only a marginal increase during the next two quarters. But it has to be noted that the higher levels of currency in circulation during lockdown have not fallen and in fact, the CiC is reaching new levels with every passing month. 

The cash transfers as part of the government’s Atmanirbhar package could have also contributed to an increase in cash circulation. Whether these levels of cash circulation sustain in the coming months remains to be seen. At the same time, it would also be interesting to compare the growth of digital transactions in the last year to understand this comprehensively. 


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