More cash, less usage pose challenge for RBI: Shirish Chandra Murmu

Robust currency demand amid rising digital payments muddles projection

Despite the declining share of cash in individual transactions amid a growing adoption of digital payments, currency in circulation (CIC) continues to grow at double-digit rates. This combination is making future cash demand harder to predict and is complicating the Reserve Bank of India’s (RBI’s) planning for cash production and distribution capacity, said Shirish Chandra Murmu, deputy governor, RBI.

 

“In the previous decade, (while the) adoption of digital payments in India has been revolutionary to say the least, yet cash in circulation has not declined, especially in rural and semi-urban areas, among low-income groups, older populations, and small businesses,” Murmu said while speaking at a focus group discussion on global cash management organised by Bank Indonesia in Jakarta on August 13.  The speech was made available by the RBI on Tuesday.

 

As per RBI data, CIC has continued to rise despite the growing adoption of digital paym- ents, increasing to ₹42.76 trillion as of July 31, 2026, from ₹41.66 trillion at the end of 2025-26 (FY26) and ₹37.24 trillion a year earlier. The pace of growth has also accelerated, with CIC rising 12.5 per cent year-on-year as of July 31, 2026, 11.84 per cent in FY26, from 6.07 per cent in FY25 and 3.93 per cent in FY24, highlighting the challenge for the RBI in forecasting cash demand as digital payments expand. 

 

The growth in digital transactions was led by small-ticket and debit card substitute transactions, while cash is preferred in high-value transactions involving precious metals and real estate, according to Madan Sabnavis, chief economist, Bank of Baroda.  

 

“CIC and digital payment volumes will continue to grow although it’s widely anticipated to have an inversely proportional relationship. Much of the growth in digital payments is driven by small-ticket transactions and the substitution of debit card transactions,” he said.

 

“At the same time, cash continues to be used for high-value transactions such as land and home purchases and gold and silver purchases, where cash payments may help avoid taxes or secure discounts,” he added.

 

“Additionally, many senior citizens are increasingly opting for cash over digital payments amid rising instances of frauds. Add to this the increased demand for cash during elections every year, and the demand for physical currency remains high,” Sabnavis said.

 

An SBI Research report in April highlighted factors such as lower interest rates, as well as monetisation of precious metals as factors behind the complexity of India’s cash demand.

 

Several factors, including lower interest rates — which can increase precautionary cash holdings, particularly in rural areas — and stronger consumption following tax cuts, can contribute to this complexity, the report said.

 

Rising precious-metal prices may also have prompted households to monetise some gold and silver holdings, adding to cash in circulation. While CIC growth is high, the cash-to-GDP ratio has declined to 11 per cent in FY26 from 14.4 per cent in FY21. This  suggests that while the absolute stock of cash is rising, incremental economic activity is increasingly being financed through digital payments, the report highlighted.

 

The coexistence of rising CIC and record digital transactions is not a contradiction,since Unified Payments Interface (UPI) is substituting cash for a growing share of transactions even as cash continues to serve other purposes, according to the report.

 

“If the RBI is unable to accurately predict the demand of the society at large when it comes to cash, given the contradictory nature of the two trends it becomes difficult for them to print and distribute cash, which may result in a cash crunch situation,” said an economist, on the condition of anonymity.

 

RBI deputy governor Murmu in his address highlighted that, over the past few years, RBI has produced 28-30 billion bank notes annually across six denominations. The central bank has disposed of roughly 21 billion pieces of notes a year.

 

As of Tuesday, 176 billion banknotes were in circulation in India. By comparison, roughly 56 billion US dollar bills and 30 billion euro banknotes were in circulation at the end of last year.

 

India’s CIC is partly driven by a denomination mix weighted toward lower-value notes, which means more notes change hands for the same value of transactions, according to Murmu.

 

“Even so, the volume gives you a sense of the scale of the logistics we (RBI) manage every day,” he added.

 

Emphasis on durability

 

The RBI deputy governor added that RBI is exploring ways to extend banknote durability, including surface coatings on the substrate and polymer notes for lower denominations.

 

The Centre has approved the introduction of one billion polymer banknotes of ₹10 and ₹20 denominations for field trials. RBI is targeting the circulation of pilot polymer banknotes from the beginning of FY28, subject to successful field trials and operational assessment. It has initiated the tendering process for procuring polymer substrate and will test the notes under Indian climatic and usage conditions before deciding on a wider rollout.

 

The RBI is also working to reduce the cash cycle's carbon footprint by optimising its distribution network and improving how banknote briquettes are disposed of.

 

Murmu also highlighted that RBI’s currency demand projections are based on a five-year forward assessment. Transactional demand is estimated using factors such as changes in CIC, GDP growth, interest rates, food inflation and the pace of digital payment adoption.

 

The RBI’s Clean Note Policy, in place since 1999, commits the central bank to making good-quality bank notes available to citizens in the denomination and place of their choice. Banks have been given quality parameters to assess notes in circulation. Notes found unfit are being replaced, Murmu said.

 

India has also built significant domestic capacity across the currency production chain. The country’s banknote paper mills, four currency printing presses and ink production units are owned and controlled by the RBI and the Government of India. This allows India to maintain domestic production of banknotes with high-security features across six denominations.

 

Currency distribution is managed via a network of 19 RBI regional offices and a much larger currency chest network (CCN) operated by banks, Murmu said.

 

The chests can be operated by designated commercial banks, cooperative banks or government treasuries on behalf of the RBI. The cash held by them remains the central bank’s property. The RBI licenses currency chests after assessing the financial strength of the operating bank and adherence to technical standards such as minimum processing capacity and adequate certified machines for processing soiled notes and detecting counterfeit notes.

 

These operations are monitored by the RBI, with withdrawals and deposits reported in real time through its Central Cash Accounting System (CCAS). They are also subject to periodic inspection and audit.

 

The chests also run periodic note-exchange and coin-distribution campaigns, and, under RBI’s linkage scheme, serve as the parent facility for a defined set of bank branches.

 

The CCN proved its worth during India's two major recent currency transitions — the 2016 demonetisation exercise and the 2023 withdrawal of the ₹2,000 notes. The network operated as the primary collection and redistribution points, ensuring both transitions were coordinated nationwide, Murmu said.

 

Despite the digital payments’ growth, cash management remains a key responsibility for central banks, said Murmum, as he underscored the importance of maintaining public confidence in physical currency.

 

“If there is one thing I want to leave you with, it is this: Cash remains a significant mode of payment in the Indian economy, and preserving trust in it, through clean notes, secure logistics, and a currency ecosystem people can rely on, is central to preserving monetary sovereignty itself,” Murmu said.