Demand for cash: an econometric model of currency demand for India

Crawford School of Public Policy | Arndt-Corden Department of Economics

Event details

ASARC Seminar

Date & time

Thursday 28 March 2019


#132 Crawford Building, Seminar Room 1, 1 Lennox Crossing, ANU


Anirudh Tagat, IITB-Monash Research Academy, Mumbai


Raghbendra Jha

In 2016 two high-value currency notes were withdrawn from circulation in a bid to tackle counterfeit currency and evaded incomes (popularly known as the ‘demonetization’ policy) in India. Recently released data from the Reserve Bank of India shows that currency in circulation has not only returned to pre-demonetization levels but has exceeded it. Despite the recent increase in use of non-cash substitutes, cash usage in India persists. This study presents new evidence on the impact of the shadow economy and informality on currency in circulation using an error-correction approach. Denomination-wise analysis of currency shows that high-value currency in circulation is inelastic to growth of alternate payment instruments. Informality in the economy leads to greater usage of medium-value currency and lower use of high-value currency notes. Implications for currency management policies are discussed.

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