Reserve bank paper said, in the month of March and April the currency circulation is higher due to rabi harvest and celebration of Hindu New Year festivals. But declines in monsoon season i.e. May to July. Janak Raj, Joice John, Bhimappa Arjun Talwar, Samir Ranjan Behera, and Indranil Bhattacharyya, who is with the central bank introduced a paper known as ‘Modelling and Forecasting Currency Demand in India: A Heterodox Approach’.
Across India celebration of Hindu New Year festivals (Gudhi Padwa, Ugadi, Pongal, Baisakhi) and the rabi harvest, rice and wheat procurement, marriage season is the reason for the increase in currency in circulation (CIC) the paper said.
The month’s May, June and July roughly coincide with the monsoon season which causes a decline in currency in circulation. Compared with the other months the CiC is expected to be higher during the festive season (October to December).
During Diwali, CiC increases around 2.2 percent followed by Dussehra and Eid time around 0.2 percent totally. On average during the general elections time, CiC increases by 0.2 percent per week.
If the election period is held over a five-week period the CiC increases as a whole by 1 percent. During the election whether national or bigger state, the impact of this election on currency is high.
Currency demand while demonetization was low, there was permanent downward shift in demand. The demand would have been higher in the absence of demonetization. Lower is the demand for currency while the interest rates in the system are high. There is an inverse relationship with currency in the long run.
Digital transactions also influence the currency demand. Digital transactions like banking cards, UPI, mobile wallets, etc. As digital transactions have lessened the currency demand, the current thrust should be sustained on digital transactions, for further moderating the currency growth. The average growth rate of currency currently is 5.03 percent and the value is 75.14. The digital payments segment total transaction value is projected to reach US$69,168 in 2020. India will contribute 2.2 percent to the world’s digital payment market, with CAGR of over 20 percent between 2019 and 2023.
