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RBI paper on Cash vs Digital Payments

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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