Pandemic fuels unprecedented demand for physical currency in 2020

• CB says unprecedented increase in CIC shows tendency to hold cash in hand during crisis times 
• Growth in physical currency was seen decelerating in recent years until 2020

The value of currency notes and coins in circulation accelerated for the first time in recent years, recording a 23.1 percent year-on-year (YoY) growth to Rs.834.2 billion in 2020, driven by unprecedented demand for physical currency, as a direct impact of the COVID-19 pandemic situation in the country.

“This unprecedented increase in CIC has been a clear indication of the tendency of the public, business entities and financial institutions to hold cash in hand as store of value during times of uncertainty,” the Central Bank said.
The growth in physical currency was seen decelerating in recent years until 2020. 

The ratio of currency in circulation (CIC) to GDP also rose to a new high of 5.6 percent in 2020, demonstrating the significance of currency as a mode of payment.

In 2020, the circulation of physical current rose by double digits for the first time since 2016, when physical currency circulation grew by a 12.4 percent YoY.

During the year, value of currency notes in circulation increased by 23.6 percent YoY to Rs.819.3 billion and value of coins 4.9 percent YoY to Rs.14.2 billion.

The Rs.5000 note accounted for 71.2 percent of the value in of currency notes in circulation while Rs.20 note had the highest volume in circulation, accounting for 30.3 percent, in 2020.

The Central Bank is planning to reintroduce the Rs.2000 note to the current (11th) note series this year.

“The note is currently being designed and it is expected to be issued during the year 2021,” the Central Bank said.
Meanwhile, the Currency Department of the Central Bank (CRD) said amid unforeseen high demand for currency notes combined with supply constraints in relations to the pandemic, it was forced to adopt to the new normal to meet the unprecedented demand for physical currency. 

Accordingly, it was able to meet the demand by direct reissuance of fit (serviceable) currency notes deposited by licensed commercial banks (LCBs) back into circulation while encouraging direct exchange of serviceable currency notes among LCBs. 

“In such context, during 2020, the CRD issued currency for the value of Rs.697.3 billion into circulation, which comprised Rs.467.1 billion of serviceable currency notes and Rs.229.5 billion of new currency notes and coins for the value of Rs.0.7 billion,” the Central Bank noted.

The Central Bank is currently is in the process of revamping its currency operations. The first stage of the procurement for revamping of currency operations was concluded last year. 

Through this project, the Central Bank expects to address several operational issues, including increasing currency note processing capacity and operational efficiency. (NF)