While India’s Unified Payments Interface (UPI) saw increased use in 2020—reaching a high of four trillion rupees-worth of transactions in December—cash in circulation also rose by 22 percent, demonstrating once again that cash and digital payments can coexist to everyone’s benefit.
Business Standard (India) says experts believe the ‘surprisingly high’ increase in circulating currency—compared to a rise of 11.8 percent in 2019 and taking into account 2020’s lockdowns—is largely due to ‘precautionary holding’. This refers to people withdrawing cash from banks in order to have an assured payment method should others become unavailable, and is commonly seen in tumultuous times such as natural disasters and economic crises. The slowdown of economic growth that began even before India’s nationwide March lockdown also encouraged people to use cash as storage of value.
Departing from previous trends, in the first quarter of 2020 incremental cash in circulation was higher than that in the entirety of 2019. Traditionally, currency with the public and deposits move in opposite directions, however last year they moved together as the pandemic led to people saving money and also holding cash at the same time. In the third quarter, demand for cash also rose during festive and marriage seasons across the country.
Another trend is that goods and services ordered through digital channels are often paid for using cash on delivery. This is also commonly seen in Middle Eastern countries such as Egypt and the United Arab Emirates.
According to bankers, cash usage was high throughout 2020 in villages and small towns, where recovery was typically better than in urban areas. This—along with a rise in the digital economy—is likely to continue in 2021 as India’s economic recovery progresses.
Source: Business Standard, India, 13 January 2021