India has made great strides in establishing itself as a less-cash economy. Testifying this, the RBI governor, Shaktikanta Das, in a conference, recently revealed that about 1,050 crore retail digital payment transactions worth INR 51 lakh crore were processed in January 2023.
However, as surprising as it may seem, the Currency-in-Circulation (CiC) is also on a steady rise – depicting a unique co-existence of cash & digital payments in the country.
So let us understand what exactly currency-in-circulation is and how it impacts the overall payment ecosystem:
An important component of every country’s money supply, currency-in-circulation is the value of the currency or cash, including banknotes or coins, issued by the country’s monetary authority – in Indian context, the RBI. It is the currency that is tangibly used for day-to-day transactions between the public, businesses and vice-versa.
Increase over the years
The Hon’ble Finance Minister, Ms. Nirmala Sitharaman recently said that the currency-in-circulation has increased to Rs 31.33 lakh crore in March 2022, from Rs 13 lakh crore in 2014. The ratio of currency-in-circulation to GDP ratio stood at 13.7% as on March 25, 2022, up from 11.6 per cent as on March 2014. Globally, the level of currency-in-circulation is considered to be an indicator of increased economic activity and GDP. This is because when people have more cash in hand, they are more likely to spend it, which can stimulate demand for goods and services.
More recently, the data released by the Reserve Bank of India (RBI) reveals that currency-in-circulation as on March 17, 2023 stood at 33.72 lakh crore.
Possible reasons for this increase
Many renowned economists state that the rise in currency-in-circulation is primarily due to India’s economic growth. Additionally, according to a research report, rising inflation and distress in India’s informal sector could also be a contributing factor to the rising currency-in-circulation.
Further, factors such as increased cash withdrawals on ATMs, especially in rural India, result in increased currency-in-circulation. This is primarily due to the disbursement of various beneficiary schemes through Jan Dhan accounts. Even today, various mom-and-pop shop owners, small vendors and merchants rely on cash payments for their day-to-day transactions. These merchants prefer cash payments as their supply chain partners or vendors request payments in cash.
Additionally, cash continues to be the most preferred mode of transaction festivals, as evident from the increase in cash withdrawals from ATMs, subsequently increasing the currency-in-circulation.
How does Cash-in-Circulation impact ATM/CRM deployment?
The deployment of ATM/CRMs is often influenced by the amount of currency-in-circulation in a country. Historically, when there is a higher demand for cash, banks choose to deploy more ATM/CRMs in geographically-strategic locations to meet the needs of their customers. This helps improve access to cash and make it more convenient for people to withdraw money.
Speaking of Cash Recycler Machines or CRMs; they accept cash deposits, store, and dispense physical currency. CRMs can automate the cash handling process, improve security, and reduce the need for manual cash counting and sorting; they can be useful in a high currency-in-circulation scenario. By enabling more efficient and accurate management of physical currency, CRMs can help optimise the flow of currency-in-circulation.
With an increased deployment of these high-efficiency machines, banks tend to outsource operations to payment players such as AGS Transact Technologies Limited who offer end-to-end management of ATM/CRMs which includes site identification and development, machine deployment, maintenance, and cash management.
Hence, it is plausible that if the currency-in-circulation increases, there will be a subsequent increase in the deployment of ATM/CRMs to meet the cash needs of customers and improve the overall efficiency of the cash ecosystem.
To summarise and conclude, currency-in-circulation is an essential component of the Indian economy, and it has various important implications such as enabling the underbanked to participate in economic activities and ensuring seamless operations in case of technological failures. While digital payments are becoming increasingly popular, cash will continue to play a significant role in India’s economic landscape for the foreseeable future.
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