Currency in circulation rises most in first half amid record stimulus

• Currency held by public rises whopping Rs.104.5bn in first half, compared to Rs.1568bn for whole of 2020

The currency in circulation rose the most during the first half of the year, as the Central Bank provided unprecedented stimulus by way of liquidity injections, which gained pace since the onset of the pandemic last year. 

The currency held by the public rose by a mammoth Rs.104.5 billion during the year through July 7, compared to the expansion of Rs.156.8 billion in the entirety of 2020 and Rs.37 billion in 2019. 

As a result, the stock of currency in circulation rose from Rs.678.0 billion in 2019 to Rs.834.8 billion in 2020 and to Rs.939.3 billion by July 7, 2021.

While there has been a continuous climb in the moneys being held by the public, the people were also seeing stockpiling cash in their bank accounts since the beginning of the pandemic last year, as they ran out of spending options. 

But unlike last year, the first three months of 2021 saw a robust growth in economic activities, specially closer to the new year holidays, where people splurge on things that they could not get their hands on for nearly a year, due to restrictions. 

This shift in economic conditions and return to near pre-pandemic behaviour, albeit briefly, may have prompted people to hold on to more money, as they may have retrieved the money that got accumulated in their bank accounts.

Meanwhile, the government also spent at least Rs.30 billion to make welfare transfers of Rs.5,000 each in cash form for those who were prevented from engaging in their livelihoods during the lockdowns reimposed since late April. 

Just prior to the dawn of the traditional new year, the government also distributed Rs.5,000 each to all Samurdhi recipient facilities in cash. 

In developed markets such as the United States, these transfers, commonly known as jobless benefits and federal extra pandemic relief payments, are made directly to the bank accounts of the intended recipients. 

While the US is confronted with a 13-year high inflation in back-to-back months in May and June after record high fiscal and monetary stimulus, Sri Lanka is also seeing inflation spiralling up, with food inflation running at over 11 percent in June.