After lockdown, currency faces public falls for the first time in five months

Is: The Indian Express

A headlong rush for cash bills by the public started alongside the Covid-19 pandemic. In March, the much-anticipated lockdown was announced, and a continued piling of cash saw its first fall in the last five months on July 31. The dip in currency with the public came in line with the relaxation in lockdown constraints as many businesses and transactions reverted to normalcy.

According to Reserve Bank of India, currency with public rose by Rs 3,24,500 crore between February 28, 2020 (Rs 22.55 lakh crore) and July 17, 2020, and hit an all-time high of Rs 25.8 lakh crore on July 17. It dropped by Rs 3,982 crore in a fortnight that ended on July 31, and the currency with the public dropped to Rs 25.76 lakh crore. However, it is essential to note that the pace of cash collection slackened in June and July, once the Centre relaxed the lockdown restrictions.

While the average monthly surge in currency with public stood at an average of around Rs 95,000 crore in the three months between March, April and May, the pace of accumulation settled to an average of Rs 16,000 crore in June and July.

“In the initial phase of lockdown, as e-commerce transactions were not permitted, and people relied on neighborhood stores, which operated mostly on cash, so people were withdrawing a higher amount of cash. Also, since people wanted to avoid exposure to the virus, they withdrew big amounts at one go to meet their monthly needs, and that led to a rise in currency with the public. With supply chain improving and e-commerce becoming operational, reliance on cash has reduced, and gradually currency with the public will come down further,” said DK Pant, chief economist, India Ratings.

The cumulative value of transactions done through UPI was mounted to Rs 7,707.6 billion, which was 24 percent higher than all transactions done through the interbank immediate payment service (IMPS).

The RBI presumes that this behavior is expected to continue as more people opt for modest savings, as a precaution. In its July monthly bulletin, RBI stated, “Looking further ahead in 2020-21, the COVID-19 pandemic is also expected to induce behavioral changes such as increasing internet-based transactions vis-à-vis cash and card-based transactions”.