Covid fear and anxiety spread, cash back in favour with public

Between March and June 2020, people withdrew cash heavily from bank branches and ATMs in the wake of the lockdown, and as dependence on cash transactions rose.

As the second surge began and intensified over the last two months, the reliance of the public on cash increased steadily.

During the fortnight ended April 9, currency with the public jumped by Rs 30,191 crore to hit a new high of Rs 27,87,941 crore. In the six-week period between February 27 and April 9, currency with the public rose by Rs 52,928 crore, show RBI data.

Experts said the increase in currency with the public is on account of the fear of imposition of lockdowns by state or central governments.

Last year, after the government announced a stringent lockdown in March, currency with the public had surged. Between March and June 2020, currency with the public shot up by Rs 3.07 lakh from Rs 22.55 lakh crore in the fortnight ended February 28, 2020 to Rs 25.62 lakh crore in the fortnight ended June 19, 2020.

On a year-on-year basis, currency with the public jumped by 16.7 per cent, or Rs 3,98,382 crore, as against a rise of 14.6 per cent, or Rs 3,03,955 crore, in the same period of last year, according to the RBI data.

Sign of insecurity, uncertainty

Cash holding is expected to rise further because of the recent spike in Covid cases as people prefer cash in uncertain times. The fear of lockdowns has forced people to withdraw money from banks, and to keep cash with them — both for medical exigencies and basic needs in uncertain times.

While the currency with the public has been rising, its pace slowed after July 2020, before gathering momentum once again in February 2021. Since February 2021, it has risen by Rs 80,857 crore.

By comparison, the rise in currency with the public between December 2020 and January 2021 was only Rs 33,500 crore. Also, in the three-month period between July and September 2020, the rise in currency with the public was Rs 22,305 crore. A jump was, however, seen in the festive months of October and November, when the currency with public rose by Rs 88,300 crore between the fortnight ended October 9 and November 20, 2020.

According to the RBI, currency with the public is arrived at after deducting the cash with banks from the total currency in circulation. Currency in circulation, which includes notes in circulation, rupee coins, and small coins, refers to cash or currency within a country that is physically used to conduct transactions between consumers and businesses. It effectively means the currency that individuals across the country hold with themselves.

Between March and June 2020, people withdrew cash heavily from bank branches and ATMs in the wake of the lockdown, and as dependence on cash transactions rose.

Bankers say the increase in currency with the public indicates that people have started to accumulate cash in anticipation of more stringent lockdown measures that states or central governments may announce to control the spread of Covid-19. People prefer cash during uncertain times, even though debit cards and mobile wallets have become popular of late.

According to bankers, the rise in cash with the public indicates greater usage of cash for transactional purposes – which could have prompted more withdrawals from ATMs. A banker who did not wish to be named said many people are withdrawing cash to prepare for a health emergency.

It is, however, important to note that the currency with the public has jumped by Rs 9.9 lakh crore or 55 per cent since the government announced demonetisation on November 8, 2016. As on November 4, 2016, the currency with the public stood at Rs 17.97 lakh crore – and currently, it amounts to Rs 27.87 lakh crore.

One of the reasons the government cited for demonetisation was to make India a less-cash society. The government and RBI pushed digitisation of payments and slapped restrictions on the use of cash on various transactions; the cash with the public, however, continues to rise.

On the other hand, money supply in the economy – or M3 – has gone up over the last couple of months. M3, which includes currency with public, current deposits, savings deposits, and fixed deposits, has increased by 11.3 per cent, or Rs 19.17 lakh crore, to a new high of Rs 189.07 lakh crore as on April 9, 2021.

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