6 Years Since Demonetization, Cash Is Still The King: Currency With Public Jumps Over 70% vs. Nov 2016

Today marks the completion of six years since India¡¯s Prime Minister Narendra Modi announced the historic decision, demonetization of Rs. 500 and Rs. 1,000 banknotes on the night of November 8, 2016.

While the ultimate aim of demonetization was to reduce corruption and black money in the economy while also boosting a cashless economy, RBI data tells a different story.

RBI data revealed last week shows that currency usage among the public has jumped to a new record high of Rs 30.88 lakh crore as of October 21st, 2022, illustrating that cash usage is still robust even six years after the demonetisation move, as per a PTI report.

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At Rs 30.88 lakh crore, the currency with the public is over 70% higher than the level for the fortnight ended November 4, 2016, i.e., just a handful of days before the historic announcement came on November 8, 2016.

As per the fortnightly data on money supply released by the RBI last week, the money in circulation with the public jumped to Rs 30.88 lakh crore as of October 21, while the central bank¡¯s data for reserve money had put the currency in circulation at Rs 17.7 lakh crore on November 4, 2016, signalling a more than 70% jump since then.

For the uninitiated, currency with the public refers to notes and coins used by people to transact, settle trades, and buy goods and services. The figure is arrived at after deducting cash held by banks from the currency in circulation, as the report mentioned.

Cash usage has been steadily rising in the Indian economy, despite newer and improved digital alternatives to payments becoming popular after demonetization as well as the COVID-19 pandemic, which placed an emphasis on contactless (digital) transactions.

What Happened To The Demonetized Banknotes?

As per previous statements by RBI officials, the demonetized currency (Rs 500 and Rs 1,000 banknotes) collected from the banks upon demonetization got processed through a currency verification and processing system that had the ability to differentiate between real and fake notes.

The demonetized notes were then shredded and converted into briquettes, which are blocks of compressed waste. After converting it into briquettes, tenders were invited. And then those briquettes were sold to cardboard and paper manufacturers.

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In short, the old banned notes that the RBI received, got shredded and converted into blocks of composite waste, and then sold to cardboard and paper manufacturers as per tenders.

Also Read: Fake Currency Notes Of Rs 500 & 2,000 Surge 101% & 54% In FY22, Says RBI Annual Report

RBI Study On Digital Payments & Cash

Earlier in 2019, an RBI study on digital payments had partly addressed the issue. "Although digital payments have been growing gradually in recent years, both in value and volume terms across countries, data also suggests that during the same time, currency in circulation to GDP ratio has also increased in consonance with the overall economic growth," it had said.

"... an increase in digital payments to GDP ratio over a period of time does not seem to automatically imply a fall in the currency to GDP ratio of the country," it had added, as per the PTI report.

The RBI study also said that after demonetisation, India has witnessed a significant increase in digital transactions, although the digital payments to GDP ratio in the country has been traditionally low.