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Currency in circulation up by Rs 5 lakh crore in 2020

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(This story initially appeared in on Jan 07, 2021)

NEW DELHI: Currency in circulation (CIC) went up by a document Rs 5 lakh crore in 2020 as Indians joined the worldwide sprint for money within the wake of the Covid-19 pandemic. With gross home product (GDP) anticipated to shrink by 7.5% in FY21, the currency-to-GDP ratio may cross 15%.

According to knowledge launched by the Reserve Bank of India (RBI), forex in circulation grew by Rs 5,01,405 crore between January 1, 2019, and January 1, 2020. Overall, it has gone as much as Rs 27,70,315 crore, up 22% from the earlier yr. This is the sharpest improve to this point, if the post-demonetisation surge because of banknote alternative is excluded.

While forex in circulation shrunk practically 20% in FY17 because of demonetisation, it jumped 37% the next yr when contemporary notes have been issued. The common development for the final decade was 12.6% and for the final 50 years 13.8%.

According to a paper printed by the RBI, within the final 50 years there have been solely 4 events when forex development was increased than 17% for three-four consecutive years. On three events, ie, throughout 1987-90, 1993-96 and 2005-09, increased forex demand was attributable to comparatively excessive nominal GDP development. The latest surge is regardless of GDP shrinking.

In 2020, it was uncertainty caused by the pandemic that drove folks to hoard additional cash over fears of medical or monetary emergency. While forex in circulation does rise with the rise in GDP, a latest paper printed by RBI employees mentioned the excessive development in forex over the past three years was regardless of low nominal GDP development.

As Covid-19 instances in India rose final yr, deposit development slowed and year-on-year development in forex with the general public accelerated from 11.3% as on February 28, 2020, to 14.5% by end-March 2020 and to 21% in June 2020.

News studies this week mentioned that 35% of all US {dollars} in circulation have been printed within the final 10 months — cash created as an consequence of central financial institution easing.

According to the RBI, this can be a world phenomenon. In its August annual report, the RBI identified that the rise in forex in circulation was notably sharp in Brazil, Chile, India, Russia and Turkey, in addition to in superior economies such because the US, Spain, Italy, Germany and France, the place the usage of money is much less.

“The rise in currency in circulation in these countries occurred concomitantly with liquidity injecting measures undertaken by their central banks. They were also impacted by the Covid-19 build-up of precautionary balance,” the RBI had mentioned.


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