Despite digital surge, cash remains India's crucial payment mode: RBI's Murmu
Despite the rapid adoption of digital payments, cash remains a significant mode of payment in the Indian economy, and preserving trust in cash is central to maintaining monetary sovereignty, said Reserve Bank of India deputy governor Shirish Chandra Murmu.
Intelligence analysis by Llama
RBI deputy governor Shirish Chandra Murmu said cash remains vital to India's economy despite the digital payments boom, citing a 'cash paradox' where currency in circulation keeps rising even as cash's transaction share falls.
Imagine you're in a small town in India, and you need to buy something from a local shop. You might not have a smartphone or a credit card, so you use cash to pay. Even though many people in India are using digital payments, cash is still very important for people who don't have access to these services. The Reserve Bank of India is trying to make cash safer and more secure by introducing new types of banknotes.
Analysis
Cash Paradox in India's Economy
The Reserve Bank of India (RBI) has been observing a peculiar phenomenon in the Indian economy - the persistence of cash alongside the rapid adoption of digital payments. Despite the digital payments boom, cash in circulation has not declined, particularly among rural and semi-urban populations, low-income groups, older people, and small businesses. This combination has created what RBI calls a 'cash paradox'.
According to RBI deputy governor Shirish Chandra Murmu, currency in circulation continues to grow at double-digit rates even as cash's share of individual transactions declines, thanks to growing digital payment adoption. This makes future demand harder to predict, which complicates the central bank's planning for production and distribution capacity.
Polymer Banknotes for India
To address the issue of note durability and improve the security of banknotes, RBI is piloting polymer banknotes for lower denominations. The aim is to roll them out by 2027-28. Polymer banknotes can incorporate advanced security features such as see-through windows, micro-optic holograms, and specialized inks, making them harder to counterfeit. Around 60 countries, including Australia, Canada, the UK, New Zealand, Singapore, Vietnam, Malaysia, and Mexico, use polymer banknotes.
Sustainability in Cash Cycle
RBI is also working to reduce the carbon footprint of the cash cycle. The central bank is optimizing its distribution network for efficiency and moving up the value chain in how it disposes of banknote briquettes. The scale of India's currency ecosystem remains enormous, with RBI and the government producing between 28 billion and 30 billion banknotes every year across six denominations, while around 21 billion notes are disposed of annually.
Self-Reliance in Currency Production
India's efforts to maintain self-reliance in currency production are also noteworthy. Banknote paper mills, four currency printing presses, and ink production units are owned and controlled by RBI and the government, allowing the country to sustain production of up to 30 billion notes a year. The logistics of moving cash across the country are supported by 19 RBI regional offices and a wider network of currency chests operated by partner banks.
Key points
- Cash remains a significant mode of payment in the Indian economy despite the digital payments boom.
- The persistence of cash alongside the digital payments boom has created a 'cash paradox' in India's economy.
- RBI is piloting polymer banknotes for lower denominations to improve the security and sustainability of the cash cycle.
- RBI is working to reduce the carbon footprint of the cash cycle by optimizing its distribution network and moving up the value chain in how it disposes of banknote briquettes.
- India's efforts to maintain self-reliance in currency production are notable, with RBI and the government producing between 28 billion and 30 billion banknotes every year across six denominations.
If the RBI's efforts to improve the security and sustainability of the cash cycle are successful, it could lead to a reduction in the carbon footprint of the cash cycle and make cash safer for people to use. Additionally, the introduction of polymer banknotes could make it harder for counterfeiters to produce fake banknotes, which could reduce the risk of financial crime.
However, the introduction of polymer banknotes could also lead to a higher cost of production, which could be passed on to consumers. Additionally, the RBI's efforts to reduce the carbon footprint of the cash cycle could be hindered by the scale of India's currency ecosystem, which remains enormous.
