MUMBAI: The pandemic has triggered a ‘dash to cash’ with many households hoarding bank notes. This has resulted in the currency to GDP ratio increasing to pre-demonetisation levels of 12% in 2019-20, RBI said in its annual report for 2019-20 released on Tuesday.
Since March 20, currency in circulation has risen to 26.9 lakh crore—a hike of 10% since the lockdown began. At the same time, the number of Rs 2000 notes in circulation has dipped sharply in two years.
The preference for cash has seen year-on-year growth in currency held with the public (CwP) accelerating from 11.3% as on February 28, 2020 to 14.5% at end-March and to 21.3% by June. The currency to bank deposit ratio also shot up from its decennial average of 15.1% to 16.3%. Incidentally, household financial savings have also taken a hit because of a fall in the value of equity and mutual fund investments post-Covid.
“The spurt in the number of confirmed Covid-19 cases in India after March 13, 2020 accentuated the deceleration of deposit growth that had commenced from February 2020, essentially reflecting a ‘dash to cash’ under extreme uncertainty,” RBI said.
Ironically, the increase in currency is taking place at a time when digital payment transactions are hitting a new high every month with UPI (Unified Payments Interface) transactions touching 150 crore last month.
Many economies, especially in the emerging world where the virus has spread rapidly, have experienced the phenomenon of rising cash in circulation.
Cross-country monetary statistics released by the IMF indicate the increase in currency in circulation was particularly sharp in Brazil, Chile, India, Russia and Turkey, as also in advanced economies such as the US, Spain, Italy, Germany and France, where the use of cash is limited. The rise in currency in circulation in these countries occurred concomitantly with their central banks taking measures to inject liquidity.
Even as the number of bank notes has grown, the Rs 2000 bank note, which was introduced during demonetisation, is seeing a sharp reduction in numbers. The number of these notes has shrunk by almost 20% in two years from 33,632 lakh pieces at end-March 2018 to 32,910 lakh pieces at end-March 2019 and further to 27,398 lakh pieces at end-March 2020.
The government had earlier said that it would be gradually reducing the number of Rs 2000 notes from circulation as these notes were introduced for speedy remonetisation in the aftermath of demonetisation in 2016. The RBI said that it did not print any Rs 2000 currency note in 2019-20.



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