For the second consecutive time, the State Bank of India (SBI) reported a dip in currency in circulation (CIC) during the Diwali week, as consumers increasingly turned to digital payments for their festival purchases. According to the latest Ecowrap report, the festive month of October 2023 saw a notable month-on-month increase in UPI transactions by 85.3 crore, amounting to Rs 1,36,600 crore in value.
The report attributes the success of the digital shift to the government's persistent efforts to formalize and digitize the economy. Interoperable payment systems like UPI, Wallets, and PPIs were highlighted for simplifying and reducing the cost of digital money transfers, even for individuals without bank accounts.
Additionally, the report delved into a 20-year analysis of currency movement during Diwali week. In both 2022 and 2023, CIC experienced declines of approximately Rs 7,600 crore and Rs 5,900 crore, respectively, contrasting with the rise observed in 2021 during the Covid-19 pandemic. Notably, a marginal CIC decline was also recorded in 2009, linked to the global financial crisis.
Soumya Kanti Ghosh, the Group Chief Economic Adviser at the State Bank of India, stated that a reduced currency in circulation has a similar effect to a Cash Reserve Ratio (CRR) cut for the banking system. This outcome leads to decreased leakage of deposits, positively influencing monetary transmission.
Ghosh emphasized that this situation is advantageous for both the Reserve Bank of India (RBI) and the government. It results in savings on seigniorage costs and contributes to a less cash-dependent economy. He further noted that the ongoing analysis of currency leakage affecting bank deposits and liquidity estimation may undergo a fundamental reorientation in the future.
The data released by the RBI on Wednesday revealed a Rs 5,934 crore drop in currency in circulation to Rs 33.6 lakh crore for the week ending November 17. Notably, Diwali was celebrated nationwide on November 12 this year. In the current financial year, there has been a cumulative decline of Rs 22,721 crore in currency in circulation so far.
