Cash in circulation has increased as economy grew in past six years: Experts
Jan 03, 2023
New Delhi [India], January 3 : The rise in currency in circulation even years after the demonetization move is largely due to the subsequent economic growth, according to economists.
According to Reserve Bank of India (RBI) data, six years after the move to ban Rs 500 and Rs 1000 notes, currency in circulation increased by 83 per cent and the value of the currency in circulation as on December 23, 2022, stood at Rs 32.42 lakh crore.
Ved Jain, an economist and former president of the Indian Chartered Accountants of India, said that it is correct to say that cash in circulation has increased, but the fact that cash in circulation has a direct connection with the growth in the overall economy.
"If GDP increases, a certain proportion of that economy will definitely be reflected in cash in circulation. Our economy in the last six years has grown and a percentage of that has also been reflected in cash in circulation," Jain said.
Jain noted that the positive side is that cash in circulation has not grown in proportion to the growth in the nominal GDP.
"Now, the Indian digital system of payment has improved a lot. UPI has made a major contribution in ushering the digital payment revolution in the country. In December 2022, UPI has crossed 7.82 billion transactions worth Rs 12.82 trillion. If you make a digital payment, the moment I make payment it goes to your account immediately," he said, adding that transacting in cash reduces the speed of money circulation which is not the cash with digital payments.
"All developed nations like the US, Europe, and Canada, their GDP is higher because the speed with which the money is rotated is much higher as compared to that of a developing nation. So digital payment gives a boost. As the digital payments are increasing, it will overtake the currency in circulation," Jain noted.
Manoranjan Sharma, Chief Economist, Infomerics Ratings attributed the rise in cash in circulation to economic activities, besides the advantage of anonymity in transacting in cash.
"To my mind, this anomalous situation is only for a brief period. As the economy gains strength as the digital payments continue to surge, we will see gradually a significant drop in the cash in circulation," Sharma added.
