Cash to GDP ratio now on par with US

Source: The Economic Times, Dec 16, 2016

MUMBAI: The government and the Reserve Bank of India may not have revealed what their target of cash to gross domestic product is, but the withdrawal of high-value currency notes has taken the number to 7.3% of the GDP, lower than even that of US’ 7.8%, shows data from the RBI. It could climb back closer to 10%, estimate economists, as the government at least partly replenishes the banking system with new notes, but will be well lower than the 13% which was before the government decided to clampdown.

“In the ultimate analysis, after complete remonetisation, the currency levels may settle for a little less than 10% of GDP,” said Soumya Kanti Ghosh, group chief economist, State Bank of India.The total stock of currency circulating in the system contracted by Rs 8.16 lakh crore between November 4 and December 9, shows data from the RBI. This includes the new currency pumped into the system in the past month.

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