The Reserve Bank of India (RBI) reports a significant increase in currency circulation, more than doubling since the 2016 demonetisation. The amount of currency with the public surged from ₹17.97 lakh crore before the note ban to ₹37.29 lakh crore by October 2025. This trend reflects changing cash usage patterns, even as digital payment methods gain popularity.
Demonetisation is a monetary policy where a currency unit is declared invalid as legal tender. This strategy is often employed to introduce a new currency system or to combat illegal financial activities. India has experienced demonetisation on several occasions:
The 2016 demonetisation aimed to tackle issues like black money, counterfeit currency, and to encourage digital payments.
The short-term economic consequences of the 2016 note ban were profound:
The currency-to-GDP ratio has decreased from 12.1% in 2016 to 11.11% in 2025, remaining below pre-demonetisation levels. For context, here are the currency-to-GDP ratios of some other countries:
Despite the demonetisation efforts, several factors contribute to the rising currency circulation:
While cash holdings are on the rise, India has also experienced a remarkable increase in digital payments. UPI-led transactions are growing at a compound annual growth rate (CAGR) of 49%. This growth is evident in urban areas, small towns, and rural markets. This dual trend indicates that while digital payments are expanding rapidly, cash continues to play a vital role in daily economic activities.
Q1. What is demonetisation?
Answer: Demonetisation is a monetary policy that invalidates a currency unit as legal tender, often to introduce a new currency system or combat illegal financial activities.
Q2. How has currency circulation changed in India since 2016?
Answer: Since the 2016 demonetisation, currency circulation in India has more than doubled, increasing from ₹17.97 lakh crore to ₹37.29 lakh crore by October 2025.
Q3. What are the economic impacts of the 2016 note ban?
Answer: The 2016 note ban led to a 1.5% drop in GDP growth and significant liquidity issues for small businesses, affecting trade and services.
Q4. Why is cash still prevalent in India despite digital payment growth?
Answer: Cash remains prevalent due to factors like cash hoarding, reliance in informal sectors, and the necessity during the COVID-19 pandemic.
Q5. What is the current currency-to-GDP ratio in India?
Answer: As of 2025, India's currency-to-GDP ratio is 11.11%, which is below the levels before the 2016 demonetisation.
Question 1: What was the primary aim of the 2016 demonetisation in India?
A) To promote digital payments
B) To increase currency circulation
C) To reduce inflation
D) To stabilize the economy
Correct Answer: A
Question 2: Which currency notes were invalidated during the 2016 demonetisation?
A) ₹100 and ₹500
B) ₹200 and ₹1,000
C) ₹500 and ₹1,000
D) ₹1,000 and ₹5,000
Correct Answer: C
Question 3: What is the current currency-to-GDP ratio of India as of 2025?
A) 9.5%
B) 11.11%
C) 12.1%
D) 8.3%
Correct Answer: B
Question 4: Which of the following factors contributed to increased cash circulation post-demonetisation?
A) Digital payment adoption
B) Cash hoarding
C) Decreased currency printing
D) Economic stabilization
Correct Answer: B
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