Cash in use now at a record 14.5% of GDP

Cash in use now at a record 14.5% of GDP
MUMBAI: The share of currency in circulation as a share of GDP hit a new high of 14.5% for the 2020-21 fiscal year. The spike came as the pandemic increased demand for cash and lowered GDP.
At the same time, the rise in all forms of digital payments continues on the fifth anniversary of demonetization, be it the Unified Payment Interface (UPI), credit and debit cards, or FASTag, demonstrating that the shift to the digital and cash intensity are not mutually exclusive.
The post-pandemic rise in currency in circulation has been a global phenomenon, described as a ‘leap to cash’ under conditions of extreme uncertainty. This has been experienced by the United States, Spain, Italy, Germany, France, Brazil, Russia, and Turkey.
Meanwhile, digital payments are almost triple what they were in fiscal 2018. The Reserve Bank of India’s digital payments index, which has 2018 as its base year at 100, has risen to 270. This index it also captures the spread of digital, taking into account the growth in the payments infrastructure.
Of the four key demonetization goals, India appears to have performed well on three. There has been an increase in digital transactions. In addition to this, there has also been a drop in counterfeit coins. Counterfeit notes detected continued to fall from 310,000 in fiscal year 2019 to 290,000 in fiscal year 20 and 200,000 in fiscal year 21. There are also signs that the economy is becoming more formalized.
According to the chief economist of the SBI group, Soumya Kanti Ghosh, there are indicators that the informal economy has shrunk to 20% of GDP from 40% a few years ago. This is comparable to Europe and much better than Latin American countries where the size of the informal economy is estimated at 34%.

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