Cash with public at 98% of pre-note ban levels, says RBI

The currency with the public (CwP), a component of money supply, has returned to the pre-demonetisation levels of 98 per cent, the Reserve Bank of India (RBI) data reveals. The data for the week ended February 2 showed the CwP rose to Rs 16.68 trillion from Rs 17.012 trillion, seen during the week before the government’s November 8, 2016, announcement of withdrawing 87 per cent of the currency in circulation. The CwP, on a year-on-year basis, was up 69.9 per cent or Rs 6,864.8 billion at the end of the first week of February. The CwP is the public demand for cash and is a component of money supply, which the RBI has no direct control over. The regulator uses open-market operations or adjusts the cash reserve ratio or the liquidity reserve ratio to spur credit growth. CwP, deposits with banks and other deposits with the RBI constitute money supply (M3).

M3 is the broadest measure of money supply and can include institutional money market funds and other liquid assets. M3 grew 9 per cent as on February 2, 2018, when compared to the pre-demonetisation levels. Demand deposits with banks were up 7.3 per cent on a year-on-year basis, while time deposits with banks were up 5.2 per cent, the RBI data said. The ratio of the CwP to M3, which shows the public’s propensity to demand cash within the context of the value of deposits they have in banks, declined from 0.13 per cent to 0.09 per cent between October 2016 and February 2017. Given the re-monetisation phase during the last year, the CwP/M3 ratio between October 2017 and February 2018 rose from 0.11 per cent to 0.123 per cent at the beginning of February 2018. The money supply data from the RBI showed that re-monetisation was accepted by the public as cash demand seemed to have met supply. People’s propensity to hold on to cash was lower than before November 2016.