Key facts
- India's central bank has 176 billion banknotes in circulation.
- The RBI prints 28-30 billion new banknotes annually.
- UPI digital transactions are surging towards a billion a day.
- Cash's share of everyday payments is shrinking, yet cash holdings are growing.
- The phenomenon of cash growing alongside digital payments has been prominent since the 2007-08 global financial crisis.
- The ECB has seen euro banknotes in circulation rise from €1 trillion in 2016 to €1.6 trillion this year.
Despite the rapid adoption of digital payment systems like India's Unified Payments Interface (UPI), which is nearing a billion transactions daily, the physical currency in circulation continues to grow at a brisk pace. The Reserve Bank of India (RBI) currently has 176 billion banknotes in circulation, printing 28-30 billion new notes annually while retiring approximately 21 billion. This phenomenon, termed the "cash paradox" by RBI deputy governor Shirish Chandra Murmu, presents a challenge for production and distribution planning.
Cash in circulation refers to the total value of physical banknotes and coins held by the public and businesses. In India, this cash is distributed through the RBI's regional offices, bank branches, ATMs, and millions of local agents known as "business correspondents." While India's cash holdings are substantial, a comparison with US dollar and euro banknotes shows that the RBI's count is partly driven by a higher share of lower-value notes.
The puzzle is not that Indians still use cash, as 94% of transactions were cash-based as recently as 2019. Rather, it is that cash is growing even as its share of everyday payments shrinks. Economists note that this trend of cash growth alongside digital payments has been observed globally since the 2007-08 financial crisis. Currency serves not only as a means of payment but also as a store of value and a hedge against calamity, with digital apps primarily replacing only the payment function.
Factors contributing to this include households holding more cash outside the banking system for emergencies or to purchase assets like gold. Additionally, a significant portion of currency growth, particularly for major reserve currencies like the US dollar, can be attributed to notes held or used abroad. Research also points to the rising value of domestic illegal activity, which often relies on unrecorded cash transactions, as a structural reason for currency growth outpacing recorded spending, a factor particularly relevant to India where property deals frequently involve undeclared cash components.
Even as digital payments are engineered to be frictionless, the "pain" of paying with cash is being replaced by a satisfying beep. However, this has not hollowed out cash demand, suggesting that fear – of digital system failures, blackouts, cyberattacks, or war – is propping up currency. This mirrors trends in Europe, where the ECB has seen a rise in euro banknotes in circulation despite a falling share of cash in point-of-sale transactions. Governments in several European countries have advised citizens to keep a minimum amount of cash at home as insurance against such events. Cash is thus being repositioned as critical infrastructure for bad days.