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RBI paper on Cash vs Digital Payments

Santhosh Kumar 29/11/2023
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RBI paper on Cash vs Digital Payments mind map Paradox in Currency Demand Cash and Digital Payments Simultaneous rise Counterintuitive trend Decoding the paradox Indian context focus Key highlights Transactional use of cash Decline observed Substituted by digital payments Store-of-value role Remains intact Pandemic impact Transitory uptick in currency demand Driven by Precautionary motives Store-of-value motives Empirical estimation Currency demand function Autoregressive distributed lag (ARDL) models Significant impacts Income Opportunity cost of holding cash E.g., interest rates Uncertainty Inverse association Digital payments vs currency demand Other determinants Maintain cash demand Recent trends and data (2023) Decline in cash deals Rise in digital payments RBI Occasional Research paper findings Influence on currency demand Precautionary motives Store-of-value motives Falling use as payment medium Substitution indicators Large-denomination banknotes growth Muted growth in small-value notes and coins Subdued cash withdrawals Diminishing cash velocity Digital modes preference For small-value retail transactions Economy growth impact Cash and digital payments potential Increased transactional activity Precautionary variables significance Potential moderation Of positive income effect on currency demand RBI Digital Payment Index (RBI-DPI) March 2023 data Index value: 395.57 September 2022 data Index value: 377.46 March 2022 data Index value: 349.30 Overall increase Across all parameters Driven by Payment infrastructure growth Payment performance enhancement Unified Payments Interface (UPI) Significant transaction growth Record set in October 2023 Transactions: 11.4 billion Value surpassed: Rs 17.6 lakh crore Currency in Circulation (CiC) October 2023 data Growth rate: 4.3% Year-ago comparison Previous rate: 7.7% Factors Withdrawal of Rs 2,000 notes Money supply (M3) growth October 2023 data Growth rate: 11.0% Year-ago comparison Previous rate: 7.8% Excluding factors HDFC and HDFC Bank merger impact

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