What is Currency-in-Circulation

1. WhatisCurrency-in-Circulation? India has made great strides in establishing itself as a less-cash economy.Testifying this, the RBIgovernor, Shaktikanta Das, in a conference, recently revealed that about 1,050 crore retail digitalpayment transactions worthINR 51 lakh crorewere processed in January2023. However, as surprising as it may seem, the Currency-in-Circulation (CiC) is also on a steady rise– depicting aunique co-existence of cash& digital payments inthe country. So let us understand what exactly currency-in-circulation is and how it impacts the overall paymentecosystem: An important component ofevery country’s moneysupply, currency-in-circulation is thevalue of the currency or cash, including banknotes or coins, issued by the country’s monetary authority – in Indian context, the RBI. It is the currency that is tangibly used for day-to-day transactions betweenthe public, businesses and vice-versa. Increaseovertheyears TheHon’ble Finance Minister,Ms. Nirmala Sitharaman recentlysaid that the currency-in-circulation has increased to Rs 31.33 lakh crore in March 2022, from Rs 13 lakh crore in 2014. The ratio of currency-in-circulation to GDP ratio stood at 13.7% as on March 25, 2022,up from 11.6 per cent as on March 2014.Globally, the level of currency-in-circulation is consideredto be anindicator of increased economicactivity and GDP.This is because when people have more cash in hand, they are more likely to spend it, which can stimulate demand forgoods and services. More recently, the data released by the Reserve Bank of India (RBI) reveals that currency-in-circulationas onMarch 17, 2023stood at 33.72lakh crore. Possiblereasonsforthisincrease Manyrenownedeconomistsstatethattheriseincurrency-in-circulationisprimarilydueto India’s economic growth.Additionally, accordingto a research report,rising inflation anddistress in India’s informal sector could alsobe a contributing factor to therising currency-in-circulation. Further,factors such as increased cash withdrawals onATMs, especially in rural India, result in increased currency-in-circulation. Thisis primarilydue tothe disbursementof various beneficiary schemes through Jan Dhan accounts. Even today, various mom-and-pop shop owners, small vendors and merchants rely on cash payments for their day-to-day transactions. These merchants prefer cash payments as their supply chain partners or vendors request paymentsin cash.

2. Additionally, cash continues tobe the most preferredmode of transactionfestivals, as evident fromthe increase incash withdrawals from ATMs,subsequently increasing the currency-in-circulation. HowdoesCash-in-CirculationimpactATM/CRMdeployment? The deployment of ATM/CRMs is often influenced by the amount of currency-in-circulation in a country.Historically, when there is a higher demand for cash, bankschoose to deploy more ATM/CRMs in geographically-strategic locations to meet the needs of their customers. This helpsimprove access to cash and make itmore convenient for people to withdraw money. Speaking of Cash Recycler Machines or CRMs; they accept cash deposits, store, and dispense physicalcurrency. CRMs can automatethe cash handling process,improve security, and reduce theneed for manual cash counting and sorting; theycan be useful in a high currency-in-circulation scenario. By enabling more efficient and accurate management of physicalcurrency, CRMs canhelp optimise the flowof currency-in-circulation. With an increased deployment ofthese high-efficiency machines, bankstend to outsource operationsto paymentplayers such asAGS TransactTechnologiesLimited who offer end-to-end management of ATM/CRMs which includes site identification and development, machinedeployment, maintenance, and cashmanagement. Hence, it is plausible that if the currency-in-circulation increases, there will be a subsequent increase in the deployment of ATM/CRMs to meet the cash needs of customers and improve the overall efficiency of the cash ecosystem. Tosummarise andconclude, currency-in-circulationis anessential componentof theIndian economy, and it has various important implications such as enabling the underbanked to participate in economic activities and ensuring seamless operations in case of technological failures. While digital payments are becoming increasingly popular, cash will continue to play a significantrole in India’s economic landscape for theforeseeable future.