Reckless to be cashless: Why it could be risky to place all one's bets on digital transaction
cash consequently recedes from the public sphere.
But triple-sponsored payment digitalisation is not always a silver bullet. So, despite UPI — which was nurtured by RBI, catalysed by demonetisation, and last-miled by global ecommerce platforms and Big Tech — advancing at a scorching pace to record 10.59 billion transactions, aggregating ₹15.7 trillion in August, cash-in-circulation (CIC) continues to grow.
In fact, on May 19, when RBI advised citizens to return all ₹2,000 notes in their possession, CIC peaked at ₹34.38 lakh crore.
This currency paradox, where the value of outstanding banknotes continues to grow despite exponential growth in payment digitalisation, has been attributed by RBI, in its Annual Report 2022-23, to factors such as indifferent interest rates, 'precautionary holdings', India's 'large informal economy' and DBTs that result in cash withdrawals. This indicates a trust deficit — in the low opportunity cost of holding money, rising inflation, undependable technology delivery that results in service denials, and the perception that a store of value should always be kept close at hand.
The currency paradox is interesting but academic.
Much more concerning is the disproportionately unequal denominational distribution of banknotes.
This is a curious phenomenon because central banks flexibly issue new and replace old currency notes. As the ombudsman of the banking system, they must ensure that cash can be withdrawn from demand deposits at any time.
As such, central banks place no limit on banknote distribution. Instead, they ensure that physical currency is optimally available in all denominations to facilitate cash transactions.
After demonetisation, however, the volume of lower-denomination notes has
