- RBI concerned over rising cash despite digital payment growth.
- Deputy Governor Murmu termed it a "cash paradox.
- "Paradox complicates predicting future currency demand for RBI.
Digital payments are growing at a decent pace, thanks to UPI. However, the rise in use of cash amid digital growth is what poses a concern for the Reserve Bank of India (RBI). According to a top official, the central bank is grappling with the ''paradox'' of growing circulation of currency despite the jump in digital payments.
Reserve Bank Deputy Governor S C Murmu, while speaking at a global seminar on cash ecosystems organised by Bank Indonesia in Jakarta on August 13, said that this paradox makes it difficult to predict demand for currency in future. He also seemed eager to explore solutions.
What Is Cash Paradox?
Explaining the phenomenon, what he termed the ''cash paradox'', Murmu said, "currency in circulation continues to grow at double-digit rates even as cash''s share of individual transactions declines, thanks to growing digital payment adoption."
He said this combination makes it difficult to predict future demand, further complicating the RBI's plans for generation and distribution capacity. He also said the Indian central bank typically makes five-year projections on currency demand each year.
"If any of you have found a good way to model this tension, I would genuinely like to hear it during our discussion," Murmu added, addressing the gathering.
What Is the Rise In Cash Projection Based On
RBI's projections are based on both "transactional demand" and "replacement demand," which are estimated from projected changes in currency in circulation due to GDP growth, interest rates, food inflation, and the pace of digital payment adoption.
Note that according to the RBI's annual report, currency in circulation increased by approximately 12 per cent to Rs 41.6 lakh crore at the end of FY26, while payments on the ubiquitous Unified Payments Interface (UPI) increased by 21 per cent in the same year.
RBI to Increase the Durability of Banknotes
Noting that one of the main reasons for the creation of the RBI in 1935 was to regulate the issuance of banknotes, Murmu said the central bank is interested in exploring ways to extend the life of banknotes, including surface coatings on substrates and low-value polymer notes.
He added that it is working on ways to reduce the cash cycle's carbon footprint. To this end, the distribution network is being improved, and the disposal of banknote briquettes is being moved up the value chain.
How Much Cash Is in Circulation in India?
According to Murmu, there are 176 billion banknotes in circulation in India. The country produces 28 billion to 30 billion rupees worth of banknotes each year and discards approximately 21 billion soiled or torn notes.