Finance CASH SPLASH

Why the cash in the system remains stubbornly high despite the rising number of digital payment options

- ANAND ADHIKARI

Between December 2018 and January 2019, the Reserve Bank of India (RBI) surveyed half a dozen major cities to gauge the prevalence of digital payments two years after the country demonetised about 86 per cent of its currency overnight. The survey sought to gauge people’s level of awareness about digital payments and the challenges they faced while using payment cards, mobile banking, net banking, and Unified Payments Interface (UPI). It threw up a list of pain points of which the main ones were a lack of point-of-sale (PoS) machines, trust issues, complicated digital processes, and transaction charges.

That pretty much sums up the reasons for a stubbornly high level of cash in the system despite the surge in digital transactions since demonetisation and the spur from the Covid-19 pandemic.

India’s currency in circulation (CIC) touched 14.6 per cent of its gross domestic product (GDP) in 2020/21, much higher than the 12 per cent before demonetisation in November 2016.

The RBI’s studies have concluded that the CIC ideally should grow slower than nominal growth in order to reduce cash flowing through the system. The CIC— a universal indicator of measuring the cash in the system—is around 8 per cent in the US and about 9 per cent in China, which does the highest number of digital transactions globally.