According to the RBI, households are holding more high-value currency at home even as they substitute lower-value currency with digital transactions. “While the UPI-led retail digital payments grew at a compound annual growth rate (CAGR) of 50% and 27% in terms of volume and value, respectively (during 2016-17 to 2021-22), the currency in circulation-to-GDP ratio also rose and peaked at 14.4% in 2020- 21,” RBI said in its annual report.
The RBI said that the demand was primarily for a precautionary motive and recent data suggests a turnaround in the pandemic-induced precautionary demand for cash. For 86 weeks since August 2021 (barring April 2022), currency in circulation has grown in single digits year-on-year.
The value and volume of banknotes in circulation increased by 7.8% and 4.4%, respectively, during 2022-23 as compared with 9.9% and 5%, respectively, during 2021-22. In value terms, the share of Rs 500 and Rs 2,000 banknotes together accounted for 87.9% of the total value of banknotes in circulation as on March 31, 2023, as compared to 87.1% as on March 31, 2022.
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