NEW DELHI — India's physical currency in circulation continues to increase at double-digit rates, even as the nation's digital payment systems achieve record adoption. The Reserve Bank of India now reports 176 billion banknotes in circulation across six denominations.
The central bank prints between 28 billion and 30 billion new banknotes annually, while retiring approximately 21 billion. The Unified Payments Interface is nearing one billion transactions daily.
Shirish Chandra Murmu, RBI Deputy Governor, described this phenomenon as the "cash paradox" during a speech to central bankers in Jakarta last month. While cash's share of individual transactions declines due to digital adoption, the overall volume of currency in circulation continues to grow.
Cash reaches the public through four primary channels: the RBI's 19 regional offices, a network of bank branches, more than 250,000 automated teller machines and cash dispensers, and millions of local business correspondents who provide banking services in rural and smaller urban areas.
For global context, Murmu stated that approximately 56 billion U.S. dollar bills and 30 billion euro banknotes were in circulation at the end of last year. The RBI's higher banknote count is partly influenced by a greater proportion of lower-value notes, which means more individual notes are needed to facilitate the same value of transactions.
Research by economist Anirudh Tagat and co-authors found that 94 percent of transactions in India were cash-based as recently as 2019. The current puzzle is the continued growth of cash, rather than its mere persistence, as its share of everyday payments decreases.
Tagat told the BBC that India represents a unique case study of the cash paradox, given the scale of both its cash and non-cash payment systems. The phenomenon of cash growing alongside digital payments has been observed globally since the 2007-08 financial crisis, supported by Bank for International Settlements research.
Currency serves three distinct purposes: as a means of payment, a store of value, and a hedge against unexpected events. Digital payment applications primarily replace only the first function. This perspective helps explain why digital payments alone do not fully account for cash demand.
David Humphrey of Florida State University, who has researched cash usage across 14 economies, points to digital payment adoption as one of several factors influencing cash levels. Households and businesses use currency for savings, as precautionary reserves, and to facilitate transactions within the informal economy and micro-retail sectors.
