The Cash vs. Digital Paradox

The Reserve Bank of India has published an interesting study on cash in circulation (CIC) today, highlighting the strange, persisting paradox of skyrocketing digital spends alongside high cash usage.

The report titled “Cash versus Digital Payment Transactions in India: Decoding the Currency Demand Paradox” by Sakshi Awasthy, Rekha Misra and Sarat Dhal provides a compelling narrative about India's financial habits.

Some cherry-picked insights:

Digital Payments vs. Cash:

Even as digital transactions grow robustly (with a 51% compounded annual growth rate in volume between 2016-17 and 2022-23), cash remains prevalent. In 2020-21, the CIC to GDP ratio peaked at 14.4%, illustrating the paradox of increasing digital transactions alongside persistent cash usage.

The Pandemic Effect

The pandemic accelerated the shift towards digital, but also spurred a rise in cash usage, attributed to its perceived reliability in uncertain times. This was evidenced by a 16.6% growth in CIC in 2020-21 compared to a decadal average of 12.7%.

Transactional vs. Value Storage

The decline in the transactional use of cash, offset by its continued role as a store of value, marks a significant shift. This is reflected in the growing preference for large-denomination notes, alongside a decline in smaller-value notes, indicating less use of cash for everyday transactions but more as a safety reserve.

Digital Payment Adoption

The rapid adoption of digital payments, particularly during the pandemic, suggests a gradual but significant transition in transactional habits, aligning with global trends towards digitalisation.

Read the full report here: https://bit.ly/3uBIAln . These findings reveal the complexities of finance in India, where traditional and modern methods coexist, each serving distinct roles shaped by societal needs and economic conditions.