9 Years After Demonetisation: Why Currency with the Public Remains High

On November 8, 2016, Prime Minister Narendra Modi announced one of the most striking economic moves in India’s history, the demonetisation of ₹500 and ₹1,000 notes. The decision aimed to tackle black money, weed out fake currency, and encourage a shift toward a digital and less cash economy. It was a bold experiment meant to formalise financial transactions and reduce India’s dependence on physical cash.

Yet, nine years later, the results are paradoxical. Instead of shrinking, the amount of currency with the public has more than doubled. Despite a booming digital payments ecosystem, Indians continue to hold and use cash in large quantities. This raises a key question: why does cash still dominate an economy that has seen one of the world’s fastest digital payment transformations?

Before demonetisation, the currency with the public stood at ₹17.97 lakh crore. Within weeks of the move, the number crashed to ₹7.8 lakh crore in January 2017 as old notes were withdrawn from circulation. But since then, the figure has steadily risen. As of October 2025, according to the Reserve Bank of India (RBI), cash with the public stands at ₹37.29 lakh crore, more than double the pre demonetisation level.

This surge doesn’t necessarily mean India has reverted to a cash heavy economy; rather, it reflects a combination of economic expansion, population growth, and behavioural persistence. When measured as a percentage of GDP, the currency to GDP ratio offers a clearer picture. Before demonetisation, it was about 8.7%, jumped to 14.5% during the pandemic when uncertainty was high, and now stands around 11.1%, still higher than 2016 but lower than the pandemic peak.

Even as digital payments through UPI, QR codes, and mobile apps have exploded, cash continues to hold its ground. Here are the key reasons behind this enduring trend:

India’s economy remains heavily informal. From small kirana stores and street vendors to daily wage labourers, a large portion of transactions occur in cash. Many such businesses lack access to formal banking systems or prefer cash to avoid transaction fees and tax scrutiny. Until these sectors are fully integrated into the digital ecosystem, cash will remain their preferred mode of payment.

Cash is not just a medium of exchange, it is also a psychological safety net. During uncertain times, such as the COVID-19 pandemic, people tend to hoard cash as a precaution. The experience of sudden liquidity shortages in 2016 further strengthened this instinct. For many households and small traders, keeping cash on hand offers a sense of control and readiness for emergencies.

As India’s economy grows, the sheer volume of transactions increases. Even if the share of digital payments rises, the absolute value of cash transactions also expands. Thus, the overall cash demand grows in parallel with GDP and consumption, particularly in sectors where digital payment penetration is limited.

India’s digital payment revolution has been remarkable, but it remains urban centric. In rural and semi urban areas, issues such as poor internet connectivity, limited smartphone access, and lack of trust in digital platforms restrict adoption. For many, especially older citizens, cash is still simpler and more reliable than navigating apps or PINs.

Cultural habits play a silent yet powerful role. The tendency to hold cash, for weddings, festivals, or daily spending runs deep in Indian households. Physical money carries a tangible sense of security and ownership that digital balances can’t replace. Such behavioural shifts take time, even with rapid technological progress.

Demonetisation had a mix of immediate disruption and long term transformation. In the short run, it led to severe liquidity shortages, long queues outside banks, and a temporary slump in informal trade. But it also brought lasting structural changes:

• Digital payments surged. UPI transactions, which were almost negligible in 2016, crossed billions per month by 2025.
• Tax compliance improved. More people began filing returns and using formal banking channels.
• Formalisation increased. Several small businesses entered the tax net and opened bank accounts.

However, when it comes to reducing cash usage or eliminating black money, the impact has been limited. Once the economy stabilised and new notes circulated, cash dependency returned, suggesting that deep rooted habits and structural issues can’t be overturned by a single policy move.

A persistently high level of cash in circulation has multiple consequences for the economy.

• For monetary policy: It affects how effectively RBI’s interest rate decisions translate into actual economic behaviour, since a large cash economy operates partly outside the formal system.
• For financial inclusion: It signals that millions still remain outside digital or banking networks, highlighting the need for better infrastructure and literacy.
• For governance and transparency: Heavy reliance on cash makes it harder to track transactions, detect tax evasion, and ensure accountability.
• For digital growth: It shows that infrastructure alone is not enough, true transformation requires changing habits and building trust in the digital ecosystem.

Nine years after demonetisation, India’s experience underscores that economic behaviour cannot be re-engineered overnight. Cash remains deeply ingrained in both culture and commerce. The rise in currency with the public doesn’t necessarily imply failure, it also reflects India’s larger, faster growing economy and expanding consumption.

Demonetisation’s real success lies in catalysing change. It pushed digital payments into the mainstream and sparked conversations about financial transparency. Today, India stands at a crossroads, not cashless, but increasingly “less-cash.”

The next step is not about eliminating cash entirely but about ensuring that digital transactions are as trusted, convenient, and inclusive as physical money. Demonetisation may not have dethroned cash, but it laid the groundwork for a financial ecosystem where both coexist, symbolising an economy in transition, still learning to balance tradition with technology.

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