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Coronavirus: Cash in circulation higher in Jan-Apr than entire 2019, shows RBI data

Coronavirus: Cash in circulation higher in Jan-Apr than entire 2019, shows RBI data

Amid the ongoing lockdown, people are spending more on cash-based services such as payments to nearby kirana stores, said Sameer Narang, Chief Economist, Bank of Baroda

India is under lockdown since March 25 India is under lockdown since March 25

Currency in circulation recorded higher surge between January and April 2020 as against the entire calendar year 2019, Reserve Bank of India (RBI) data showed. Currency or cash in circulation recorded an increase of Rs 2.66 lakh crore between just January and May 1, 2020. It's more than the rise in circulation of Rs 2.40 lakh crore seen from January to December 2019. With deposit rates coming down, people are not keeping money with the banks, leading to rise in cash in circulation, said economists. People are not even investing in various financial instruments amid the ongoing uncertainty owing to coronavirus lockdown, they added.

Cash in circulation has risen in the January-April period, even though the economic activity has remained suspended over the last few weeks. Currency in circulation generally increases with a rise in economic activity, especially during elections and festivals. "Indian households generally consider cash as the safest mode of transaction. Amid lockdown, people are willing to keep more cash in hand than going out often to withdraw it. Also, the deposit rate is coming down and this has prompted people to sit on cash rather than deposit it with banks. The withdrawals have also increased at a faster pace," said Madan Sabnavis, Chief Economist, CARE Ratings.

Amid the ongoing lockdown, people are spending more on cash-based services such as payments to nearby kirana stores, said Sameer Narang, Chief Economist, Bank of Baroda. "Most of the economy has slowly moved towards cash, seeing the kind of services which are in operation currently. The nature of businesses which are open right now have a high propensity of cash. Even Jan Dhan bank accounts are also seeing higher cash being deposited, along with higher withdrawals," said Sameer Narang.

India has been under a coronavirus lockdown since March 25. The lockdown is expected to be lifted on May 17.

"Liquidity in the system has increased over the months but people are not willing to invest amid ongoing uncertainty due to the coronavirus crisis. According to me, people are hoarding more cash and waiting for better times to start investing again," said Abhimanyu Sofat, Vice-President, Research, IIFL.

Currency in circulation refers to the amount of cash in the form of paper notes or coins which is physically used to conduct transactions between consumers and businesses. The currency in circulation is all of the money that has been issued by the RBI, minus cash that has been removed from the system.

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