What Happened
- SBI Research reported that Currency in Circulation (CiC) reached an all-time high of approximately Rs 40 lakh crore by January 2026 end, with year-on-year growth accelerating to 11.1% from 5.3% the previous year.
- Simultaneously, monthly UPI transactions were valued at approximately Rs 28 lakh crore, equivalent to nearly 70% of the total currency stock, indicating robust digital payment adoption.
- Despite the record cash levels, the cash-to-GDP ratio has declined to 11% in FY26 from 14.4% in FY21, suggesting GDP growth is being financed increasingly through digital channels.
- SBI Research attributed the cash surge to multiple factors: lower interest rates increasing precautionary demand, surging gold and silver prices prompting households to liquidate holdings into cash, and GST notices to small traders potentially deterring UPI use.
- The Karnataka Commercial Taxes Department's issuance of approximately 18,000 GST notices to small traders for UPI transactions exceeding the Rs 40 lakh registration threshold may have caused some merchants to revert to cash.
Static Topic Bridges
Currency in Circulation and Monetary Aggregates
Currency in Circulation (CiC) refers to the total value of banknotes and coins held by the public, excluding those in bank vaults and RBI reserves. CiC forms the most liquid component of the money supply and is a key sub-component of Reserve Money (M0 = CiC + bankers' deposits with RBI + other deposits with RBI). The broader monetary aggregates M1 (narrow money) and M3 (broad money) build upon CiC. The RBI monitors CiC growth as an indicator of liquidity conditions, economic activity, and the effectiveness of its monetary policy transmission.
- CiC is published weekly by the RBI in its Weekly Statistical Supplement
- Reserve Money (M0) = CiC + Bankers' deposits with RBI + Other deposits with RBI
- M1 (narrow money) = CiC + Demand deposits + Other deposits with RBI
- M3 (broad money) = M1 + Time deposits of banks
- Rs 500 denomination notes account for approximately 87% of total CiC value
- CiC growth is influenced by: GDP growth, inflation, interest rates, seasonal factors (festivals, elections, agriculture)
- Post-demonetisation (November 2016), CiC recovered to pre-demonetisation levels by March 2018
Connection to this news: The 11.1% YoY growth in CiC, despite India's digital payments revolution, presents the "currency demand paradox" that challenges the assumption that digital payments directly substitute for physical cash.
Unified Payments Interface (UPI) and Digital Payments Ecosystem
UPI is India's real-time interbank payment system, developed by the National Payments Corporation of India (NPCI) and launched in April 2016. It enables instant money transfers between bank accounts via mobile devices using a Virtual Payment Address (VPA). UPI has grown to become the world's largest real-time payment system, processing over 16 billion transactions monthly. The system is built on the IMPS (Immediate Payment Service) infrastructure and operates 24/7. India's UPI model has been internationalised, with linkages to Singapore's PayNow, France, UAE, and Sri Lanka.
- Launched: April 2016 by NPCI (owned by RBI and Indian Banks' Association)
- Monthly transactions (January 2026): 16+ billion, valued at Rs 28+ lakh crore
- Zero merchant discount rate (MDR) for UPI transactions mandated since January 2020
- International linkages: Singapore PayNow, France, UAE, Sri Lanka, Nepal, Bhutan, Mauritius
- UPI Lite: offline mode for small-value transactions (up to Rs 500)
- e-RUPI: voucher-based digital payment for targeted benefit transfers
- UPI accounts for approximately 80% of all digital retail payments in India
Connection to this news: The SBI report highlights that UPI's explosive growth has not displaced cash but rather expanded the overall payments universe, with both cash and digital payments growing simultaneously to serve different transaction segments.
The Currency Demand Paradox
The currency demand paradox (also called the "paradox of banknotes") is a phenomenon observed globally where the value of banknotes in circulation rises even as their use in payments declines relative to digital alternatives. This has been documented in Sweden, the UK, the Eurozone, and now India. Economists attribute it to cash serving multiple functions beyond transactions: store of value (precautionary savings), unit of account in the informal economy, and medium for transactions that participants prefer to keep outside the formal financial system. In India, the large informal sector (employing approximately 80% of the workforce) and rural economy sustain cash demand.
- Observed in multiple economies: Sweden (despite being nearly cashless), UK, Eurozone, Japan
- Cash-to-GDP ratio in India: declined from 14.4% (FY21) to 11% (FY26) despite rising absolute CiC
- India's informal sector: approximately 80% of employment, significant cash dependency
- Rural India: digital infrastructure gaps sustain cash preference
- Precautionary cash holding increases during periods of economic uncertainty or low interest rates
- Gold/silver price surges create cash liquidity as households monetise physical assets
Connection to this news: India's version of this paradox is unique because the digital alternative (UPI) is far more advanced and widely adopted than in most countries experiencing the same phenomenon, making the continued cash growth particularly noteworthy for monetary policy analysis.
Key Facts & Data
- CiC as of January 2026: approximately Rs 40 lakh crore (all-time high)
- CiC year-on-year growth: 11.1% (up from 5.3% previous year)
- Monthly UPI transaction value: approximately Rs 28 lakh crore (70% of CiC)
- Cash-to-GDP ratio: 11% in FY26 (down from 14.4% in FY21)
- Karnataka issued approximately 18,000 GST notices for UPI transactions exceeding Rs 40 lakh threshold
- Rs 500 notes constitute approximately 87% of CiC by value
- UPI processes 16+ billion transactions per month
- Digital payments CAGR (2015-2025): 48% by volume, 12.5% by value