NEW DELHI: People, wary of a looming economic crisis, seem to be depending more on liquid money. The Currency in Circulation (CIC) in the country during the first four months of 2020 has surpassed the CIC during the entire 2019, reveals the latest data from the Reserve Bank of India (RBI). According to the data, currency in circulation between January 1 and May 1 stood at Rs 2.66 lakh crore, higher than Rs 2.40 lakh crore in the entire year of 2019.
Currency in circulation refers to the amount of cash in the form of paper notes or coins, which is physically used for 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.
Cash circulation normally spikes during times of heightened economic activity, with people needing more money for transactions. The demand for currencies also generally surges during the festive season and during elections. Presently, with the economic activities shrinking due to the ongoing coronavirus pandemic, people are withdrawing large amounts of cash and keeping them.
“The withdrawal has gone up from the last week of March. After the Prime Minister announced the three-week lockdown on March 24, there were rush for cash withdrawals as the neighbourhood mom-and-pop stores turned out to be most reliable for daily grocery needs. Many are withdrawing cash from ATMs and keeping it as a reserve for personal needs,” said a banker from State Bank of India. Also, with bank deposit rates coming down, people are decreasingly keeping money with the banks, and are not investing it in financial instruments either. Analysts say this reflects uncertainties.
Going forward, this may pose another challenge for the banking regulator, the RBI, as banks, reluctant to lend, have already parked Rs 8.53 lakh crore of their excess liquidity with the central bank as of Tuesday, data showed.
The problem of excess liquidity parked with the central bank will be further accentuated as banks are unlikely to start lending anytime soon, even after the lockdown ends, given the economic uncertainties in the wake of the pandemic. Businesses might not also want to increase their debt.