Currency Surge: Nine Years After Demonetisation
Nine years after India's demonetisation, the amount of currency with the public has significantly increased. In November 2016, Prime Minister Narendra Modi announced the demonetisation of Rs 500 and Rs 1,000 notes to tackle black money and promote digital payments. Initially, this move led to a drastic drop in currency with the public, but as of October 2025, it has risen to Rs 37.29 lakh crore, more than doubling since the announcement.
The economic impact of demonetisation was immediate and severe. Many small businesses faced liquidity shortages, leading to closures and job losses. The GDP growth rate took a hit, declining nearly 1.5 percent in the aftermath. The sudden invalidation of high-denomination notes caused chaos, resulting in long queues at banks and ATMs. In subsequent years, the government printed new notes, but a persistent preference for cash remained strong.
The COVID-19 pandemic further influenced cash hoarding behavior. In 2021, people rushed to accumulate cash as a safety measure during lockdowns, primarily for essential purchases. This behavior indicated a deep-rooted reliance on cash, especially in a country where many transactions still occur in informal settings.
The Reserve Bank of India (RBI) defines currency with the public as the total currency in circulation minus cash held by banks. Despite the significant rise in currency figures, the currency-to-GDP ratio has fluctuated. It peaked at 14.5 percent during the pandemic but has since dropped to 11.11 percent in 2025, indicating a move towards digital transactions, albeit slowly.
India's currency-to-GDP ratio remains higher than that of many major economies. Countries like Japan, the Eurozone, and the US have lower ratios, reflecting their more formalized and digitalized economies. Despite the government's efforts to promote a cashless society, cash continues to dominate, highlighting the cultural preferences and limited digital infrastructure in many regions.
Digital payment systems, particularly Unified Payment Interface (UPI), have shown remarkable growth, with billions of transactions occurring each year. This suggests a gradual shift in consumer behavior towards digital payments, especially in tier 2 and tier 3 cities. However, the coexistence of high cash volume indicates a complex economic landscape where tradition and modernity meet.
As India moves forward, understanding the dynamics of cash usage and the economy will be crucial for policymakers aiming to balance growth with financial inclusion and stability.
