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Why in news?

  • The first two weeks of March 2020 saw a jump of about ₹53,000 crore in cash available with the public, a spike over the fortnightly average of ₹8,435 crore over the previous 12 months.
  • The surge continued into lockdown, in spite of apprehensions that RBI notes could act as carriers of coronavirus.
  • Studies suggest that the virus can survive on notes that pass through various anonymous hands for several hours, maybe even longer, yet, there is more cash around than ever before.
  • Even advisories issued by authorities to opt for cashless transactions had no effect.

What explains the popularity of paper notes?

There are three main reasons we typically keep money in its raw form:

  1. To Spend on consumption,
  2. To Invest it in the hope of returns,
  3. For Contingency needs.

Anxiety spurs the need to keep emergency funds in a form as liquid as possible, and nothing beats the liquidity of cash.

Such behaviour was noticed even in the aftermath of demonetization.

Way Forward: How to Reduce Dependency on hard cash

  • For currency demand to decline, trying to persuade people to go cashless is not enough. Digital money needs to be seen as sufficiently liquid too.
  • Apart from expanded acceptability, e-transactions should not cost sellers anything at all.
  • Further, e-commerce firms should be allowed to sell anything that’s legal even in red zones, where they are currently allowed to deliver only “essentials”, as defined by the State.
  • People have the need for an assurance that the economy will be looked after, in order to avoid being panic-stricken.

-Source: Livemint

December 2023