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Homechevron_rightBusinesschevron_rightMore cash with the...

More cash with the public defeats one of goals of demonetisation

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More cash with the public defeats one of goals of demonetisation
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New Delhi: Less use of paper cash was one of the said goals when the government of India had taken away the tender value of Rs 1000 and Rs 500 on November 8, 2016.

Over the five years, the use of paper cash or the currency with the public shot up to record a 57.48 per cent rise to Rs 10.33 lakh crore from a level of Rs 17.97 lakh crore on November 4, 2016, according to the RBI data for period ending October 8, 2021.

It clearly shows that for the public no matter how digital mode works in their daily life, the currency remains the preferred mode of payment. For the fortnight ended October 23, 2020, the currency with the public rose by Rs 15,582 crore ahead of the Diwali festival. It rose by 8.5 per cent, or Rs 2.21 lakh crore, on a year-on-year basis, says the RBI data.

Following the ban of high denomination currencies, the cash with public registered a decline of 7.8 lakh crore in January 2017 from Rs 17.97 lakh crore on November 4, 2016, the data said.

Cash in the system has been steadily rising, even though the government and the RBI have pushed for a "less-cash society", digitisation of payments and imposed restrictions on the use of cash in various transactions.

Despite the push by the government and the RBI for digitisation of payments to create a less-cash society, the cash flow in the market has reportedly been rising, particularly during the lockdown in 2020.

With the fear of the non-availability of cash in the banks, people rushed to accumulate cash during the lockdown times to meet their essential needs from neighbourhood groceries.

As per the RBI's definition, currency with the public is arrived at after deducting cash from banks from total currency in circulation (CIC). CIC refers to cash or currency within a country that is physically used to conduct transactions between consumers and businesses.

The impact of sudden withdrawal of cash from the market on many economic fronts has been severe, the effect of which could be visible even today, with demand falling, businesses facing a crisis and gross domestic product (GDP) growth declining nearly 1.5 per cent, creating a liquidity shortage.

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