RBI finds cash demand harder to predict as digital payments grow

The Reserve Bank of India (RBI) is grappling with predicting future cash demand as the currency in circulation has been expanding at double-digit rates, despite the rise in digital payments, according to Deputy Governor SC Murmu. This conundrum complicates the central bank's efforts in planning for production and distribution infrastructure.

In his address at a central bankers' meeting in Jakarta on August 13, Murmu highlighted that digital payment adoption has been a game-changer in India, yet cash in circulation has remained robust, particularly in rural and semi-urban regions, among low-income individuals, the elderly, and small enterprises. The RBI has been producing between 28 and 30 billion banknotes annually across six denominations for several years, with approximately 21 billion notes being disposed of each year.

Currently, there are roughly 176 billion notes in circulation nationwide. Comparatively, the United States issued about 56 billion dollar bills and the Eurozone had 30 billion euro banknotes in circulation at the end of last year. Murmu, while discussing global cash management at a Bank Indonesia event, mentioned that India's large number of notes is partly attributed to the higher proportion of lower-value notes, leading to more transactions being carried out with individual pieces of currency.

The RBI is actively exploring methods to prolong the lifespan of banknotes, such as applying surface coatings and introducing polymer banknotes in lower denominations. The central bank is also focused on minimizing the environmental impact of the cash cycle.