{"id":72700,"date":"2025-11-10T12:16:16","date_gmt":"2025-11-10T06:46:16","guid":{"rendered":"https:\/\/vajiramandravi.com\/current-affairs\/?p=72700"},"modified":"2025-11-10T16:59:26","modified_gmt":"2025-11-10T11:29:26","slug":"nine-years-after-demonetisation-why-cash-in-circulation-remains-high","status":"publish","type":"post","link":"https:\/\/vajiramandravi.com\/current-affairs\/nine-years-after-demonetisation-why-cash-in-circulation-remains-high\/","title":{"rendered":"Nine Years After Demonetisation: Why Cash in Circulation Remains High"},"content":{"rendered":"<h2><b>Demonetisation Latest News<\/b><\/h2>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Currency with the public has risen from \u20b917.97 lakh crore in November 2016 to \u20b937.29 lakh crore in October 2025, more than doubling since demonetisation.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Although cash holdings surged, the rapid economic growth of over 6% annually has kept the currency-to-GDP ratio below pre-demonetisation levels, indicating that India\u2019s expanding economy has absorbed the rise in currency circulation.<\/span><\/li>\n<\/ul>\n<h2><b>Demonetisation of November 2016<\/b><\/h2>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">On November 8, 2016, Prime Minister Narendra Modi announced the demonetisation of \u20b9500 and \u20b91,000 notes, which made up <\/span><b>86% of the currency in circulation<\/b><span style=\"font-weight: 400;\">.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Effective from midnight of November 9, the move aimed to eliminate black money, curb fake currency, promote digital payments, and formalise the Indian economy.<\/span><\/li>\n<\/ul>\n<h2><b>Economic Disruption and Lasting Cash Dependence After Demonetisation<\/b><\/h2>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The 2016 note ban caused a <\/span><b>sharp liquidity crisis<\/b><span style=\"font-weight: 400;\">, reducing demand and GDP growth by about 1.5%.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Many small businesses shut down amid cash shortages, and long queues formed at banks and ATMs.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Though new notes were introduced later, a mix of cash hoarding and continued reliance on currency pushed the money in public hands above pre-demonetisation levels, showing India\u2019s enduring preference for cash.<\/span><\/li>\n<\/ul>\n<h3><b>Pandemic Led to Surge in Cash Holdings<\/b><\/h3>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">During the <\/span><b>Covid-19 lockdown (2020\u201321)<\/b><span style=\"font-weight: 400;\">, people rushed to keep <\/span><b>cash on hand<\/b><span style=\"font-weight: 400;\"> for essentials such as groceries and medicines.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">This precautionary behaviour drove a <\/span><b>sharp rise in cash with the public<\/b><span style=\"font-weight: 400;\">, reversing the earlier post-demonetisation decline.<\/span><\/li>\n<\/ul>\n<h2><b>Understanding Currency with the Public and India\u2019s Cash Usage Trends<\/b><\/h2>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">According to the RBI, \u201ccurrency with the public\u201d is the total <\/span><b>currency in circulation (CIC)<\/b><span style=\"font-weight: 400;\"> minus the cash held by banks.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">CIC includes all notes and coins issued by the central bank used in daily transactions.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">As of October 17, 2025, cash with the public rose by \u20b930,709 crore fortnightly and \u20b93.13 lakh crore year-on-year.<\/span><\/li>\n<\/ul>\n<h3><b>Currency-to-GDP Ratio Trends<\/b><\/h3>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">While the absolute amount of currency has increased, <\/span><b>strong GDP growth\u20147.8% in Q1 FY2026\u2014has stabilised the CIC-to-GDP ratio<\/b><span style=\"font-weight: 400;\">.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The ratio climbed from 8.7% (2016\u201317) to 14.5% (2020\u201321) during the pandemic, then fell to 11.11% in 2025, indicating a gradual shift towards digital payments.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">A lower ratio signifies better monetary transmission, reduced cash dependence, and stronger inflation control.<\/span><\/li>\n<\/ul>\n<h3><b>Global Comparison<\/b><\/h3>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>India\u2019s 11.11% currency-to-GDP ratio remains higher<\/b><span style=\"font-weight: 400;\"> than major economies\u2014Japan (9\u201311%), Eurozone (8\u201310%), China (9.5%), Russia (8.3%), and the U.S. (7.96%).<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The higher ratio in India reflects its large informal economy, cash preference, and slower\u2014but improving\u2014digital payment adoption.<\/span><\/li>\n<\/ul>\n<h3><b>Cash Still Dominates Despite Digital Growth<\/b><\/h3>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Despite efforts to build a \u201c<\/span><b>less-cash society,\u201d India\u2019s cash usage remains high<\/b><span style=\"font-weight: 400;\">.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The Unified Payments Interface (UPI) has revolutionised digital payments, processing 185.9 billion transactions in FY25 and growing at a 49% CAGR between FY23\u2013FY25.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">UPI\u2019s deep penetration in tier-2 and tier-3 cities signals a strong digital shift, yet cash remains deeply entrenched in daily economic activity.<\/span><\/li>\n<\/ul>\n<h2><b>Conclusion<\/b><\/h2>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">India\u2019s cash dependency remains significant despite record digital payment growth. A stable currency-to-GDP ratio reflects the <\/span><b>coexistence of cash comfort and digital confidence<\/b><span style=\"font-weight: 400;\"> in the evolving Indian economy.<\/span><\/li>\n<\/ul>\n<p><b>Source:<\/b> <strong><a href=\"https:\/\/indianexpress.com\/article\/business\/banking-and-finance\/nine-years-after-demonetisation-why-currency-with-public-remains-high-10356027\/\" target=\"_blank\" rel=\"nofollow noopener\">IE<\/a> | <a href=\"https:\/\/timesofindia.indiatimes.com\/india\/gang-cheats-traders-sitting-on-old-notes\/articleshow\/125195600.cms\" target=\"_blank\" rel=\"nofollow noopener\">ToI<\/a><\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Currency with the public has doubled since demonetisation, but GDP growth and digital payments have stabilised India\u2019s currency-to-GDP ratio, showing a balance of cash and digital use.<\/p>\n","protected":false},"author":18,"featured_media":72790,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[18],"tags":[3631,60,22,59],"class_list":{"0":"post-72700","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-upsc-mains-current-affairs","8":"tag-demonetisation","9":"tag-mains-articles","10":"tag-upsc-current-affairs","11":"tag-upsc-mains-current-affairs","12":"no-featured-image-padding"},"acf":[],"_links":{"self":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts\/72700","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/users\/18"}],"replies":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/comments?post=72700"}],"version-history":[{"count":0,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts\/72700\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/media\/72790"}],"wp:attachment":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/media?parent=72700"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/categories?post=72700"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/tags?post=72700"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}