Currency in Circulation (CiC)

Subject – Economy

Context – CiC to GDP ratio remains high at 14.5% for FY21: Currency-in-circulation growth falls

Concept –

Cash-to-GDP Ratio or Currency in Circulation (CIC) to GDP Ratio or simply currency-to-GDP ratio shows the value of cash in circulation as a ratio of GDP.
Currency in circulation (currency with the public) comprises of:
- currency notes and coins with the public
- cash in hand with banks.
- It is a major liability component of a central bank’s balance sheet.
As per the RBI’s definition, currency with public is arrived at after deducting cash with banks from total CiC. CIC refers to cash or currency within a country that is physically used to conduct transactions between consumers and businesses.
The growth in CiC has fallen to 7.9 per cent (Rs 2.14 lakh crore) in November 2021 as against 22.2 per cent (over Rs 5 lakh crore) growth in the same month a year ago.
However, more than five years after demonetisation, CiC has risen steadily every year, with the CiC to GDP ratio having now surged to 14.5 per cent in 2020-21 from 8.7 per cent in 2016-17.
- CiC to GDP ratio is now ever higher than that in the pre-demonetisation period.
Demand for currency depends upon several macro-economic factors including economic growth and level of interest rate.