The currency in circulation in India spiked up by a record 5 lakh crore in 2020 even though the country's gross domestic product (GDP) is experiencing a contraction.
According to a report in timesnownews, the data released by the Reserve Bank of India states that the currency in circulation grew by Rs 5,01,405 crore between January 1, 2020, and January 1, 2021. Overall, the value of notes in circulation has risen to Rs 27,70,315 crore, up 22% from the previous year.
The Times of India mentioned in a report that the spike in CIC is the sharpest increasing barring the post-demonetisation surge due to banknote replacement.
The GDP is expected to shrink by 7.5% in FY21, the currency-to-GDP ratio could cross 15% after this jump in CIC.
Further, the report cited that in the last 50 years there were only four occasions when currency growth was higher than 17% for 3-4 consecutive years. However, in three occasions, the currency demand was spurred by relatively high nominal GDP growth, but this time it spiked in 2020 despite the GDP shrinking.
Due to COVID-19, deposit growth slowed and, and the cash-in-hand with the public showed an acceleration of year-on-year growth from 11.3% as on February 28, to 14.5% at end-March and to 21% in June.
Other reports stated that 35% of all dollars in circulation were printed in the last 10 months— money created as an outcome of central bank easing.
The uncertainty that people felt in the wake of the pandemic caused people to save more cash over fears of medical or financial emergency.
