2 min read.Updated: 05 May 2021, 05:47 AM ISTLivemint
Cash in circulation is reported to be surging amid pandemic insecurities. It may turn out to be just a blip, but banks and their regulator must adapt to such shifts in currency demand
The government’s goal of a ‘cashless economy’ notwithstanding, India’s demand for paper money seems to be soaring. Estimates suggest that cash in circulation zoomed last month, up sharply from a total of almost ₹27.9 trillion on 9 April, a figure published by the Reserve Bank of India (RBI). This surge was probably part of what an RBI report described as a “covid-19 induced dash for cash", with people in pandemic-ravaged cities scurrying for ATM machines to either use or stash away large sums of it. While disruptions caused by local lockdowns may have been behind this display of the ‘precautionary motive’, as observed last year, anecdotal accounts over the past three weeks also point to felt or foreseen requirements of currency for medical emergencies. Given our national push for online transactions in this digital age, the increased uptake of bank notes would seem like a slide-back. However, in the context of life-support scarcities evident in many covid hotspots across India, it could also be interpreted to reflect perceptions of black-market purchases being inescapable in case push came to shove. Apart from oxygen cylinders and concentrators, various drugs have been found to be selling at premium prices in cash. Under such circumstances, a glare of reproach at users of cash would do no good. Instead, let’s make currency as easily available as we can.
The textbook rationale for that is clear. Uncertainty tends to result not just in the hoarding of cash, but also higher savings in a big tilt towards thrift that could add up across a country to keep its economy from gaining pace. If currency is difficult to obtain, then it could fuel both the worries of households and their efforts to get hold of it. But in recent years, especially after demonetization in 2016, the coverage of ATM networks has been in retreat. Banks have been shutting them down. Today, many machines lie neglected, with no-cash apologies no longer uncommon. This can be traced partly to the rapid adoption of our Unified Payments Interface for online transfers, which is a worthy trend in itself, and partly to the lost incentive of banks to install ATMs for their own customers after RBI made it cheaper for anyone with a valid card to draw money from any dispenser within reach. Anyhow, the outcome has been a broad reduction in access to bank notes, and now that covid has curtailed bank visits as well as banking hours, a shortage anxiety could plausibly have stormed into play. Rational or not, a dash for cash is very likely to have occurred in recent weeks, and it may not be over yet.
The banking sector must respond to that, even if April’s scramble for cash turns out to be a blip. Banks should expand their ATM chains. In the interim, they could reactivate the ones that are gathering dust and ensure the timely refills of those in operation. Our central bank should make policy tweaks to enable and encourage this. The neglect of cash dispensers is glaringly visible in the failure of most banks to adapt their ATM interfaces to the risk of covid infection. More than a year past the viral outbreak, this speaks poorly of their customer orientation. As of now, most have too many touch-points, flash a surfeit of needless options, and take much too long to roll out money. This makes for an anxious experience. These are extraordinary times. And, no, cash is not on its way out. Not yet, anyway. So don’t let what’s ideal get in the way of what’s needed.