CASH IN SYSTEM

Subject : Economy

Context : Four Years since Demonetisation , Cash in system is steadily rising.

Concept :

• Four years after the government announced demonetisation on November 8, 2016, the currency with public for the fortnight ended October 23, 2020 stood at a record high of Rs 26.19 lakh crore — up 45.7 per cent or Rs 8.22 lakh crore from a level of Rs 17.97 lakh crore on November 4, 2016. In the fortnight ended October 23, 2020, the currency with public rose by Rs 10,441 crore to hit a new high.
• Cash in the system has been steadily rising, even though the government and the Reserve Bank of India (RBI) pushed for a “less cash society”, digitisation of payments and slapped restrictions on the use of cash in various transactions.
• However, the pace of rise in currency with the public has been very sharp over that last 10 months as it has risen from Rs 21.79 lakh crore as on January 3, 2020 to Rs 26.19 lakh crore as on October 23, 2020.
• The jump was primarily driven by a rush for cash by the public between March and May as the government announced stringent lockdown to tackle the spread of the Covid-19 pandemic.
• As nations around the world announced lockdowns in February and the Indian government also prepared to announce lockdown, people began accumulating cash to meet their grocery and other essential needs that was being mainly catered by neighbourhood grocery stores
• As per the RBI definition, currency with public is arrived at after deducting cash with banks from total currency in circulation. Currency in circulation refers to cash or currency within a country that is physically used to conduct transactions between consumers and businesses.
• Earlier, the sudden withdrawal of notes in November 2016 roiled the economy, with demand falling, businesses facing a crisis and gross domestic product (GDP) growth declining nearly 1.5 per cent. Many small units were hit hard and shut shutters after the note ban. It also created a liquidity shortage.
• According to an RBI study on digital payments, although digital payments have been growing gradually in recent years, both in value and volume terms across countries, the data suggests that during the same time currency in circulation to GDP ratio has increased in consonance with the overall economic growth.