Currency in circulation is higher in the first four months of 2020 than in the full year of 2019

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Mumbai, May 08, 2020, Friday

Economic uncertainty has forced the people of the country to hold on to cash to such an extent that the amount of cash held by the people in the first four months of the current calendar year was even higher than the full year figure of calendar year 2016.

Currency in circulation has increased as economic activity in the country has gone to the bottom. Currency in circulation usually increases in case of increase in economic activity, as people need cash to transact. In addition, the demand for currencies increases during the festive season and during elections. In addition to this, even without such an event i.e. even when economic activity slows down, the currency in circulation increases. When the economic situation goes down, people withdraw a large amount of cash and keep it with them.

More and more prefer to keep cash in hand rather than deposit it in a bank. An increase in currency in circulation remains a challenge for the banking regulator. Banks, on the other hand, have also deposited their surplus with the Reserve Bank. According to the data, banks had deposited an additional Rs 2.5 trillion in liquidity with the Reserve Bank.

The Reserve Bank has reduced the reverse repo rate to prevent banks from depositing their surplus with the Reserve Bank.

Cane-in-circulation will also remain high as long as the lockdown continues, RBI sources said.

Banks are also reluctant to lend money to industries amid the economic downturn caused by the coronavirus. In the current scenario, banks are worried about a sharp rise in non-performing assets.

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