Hoarding of cash happening due to demonetisation: LocalCircles Survey

New Delhi, December 15, 2016: One of the biggest collateral damage of demonetisation even after more than a month is on spending. This is happening as the cash crunch is leading to curb on spending as most consumers are hoarding cash. This is the insight from LocalCircles, a citizen engagement platform’s recent survey on usage of the new currency notes.

While the government has been saying that they have released enough currency notes into the system, citizens feel otherwise. Around 68% of the citizens polled say that have not yet received a Rs 500 note. This shows that Rs 500 note which is most popular currency note as it is highly fungible across transactions. It was circulated on a small scale by RBI in the week after demonetisation and then volumes were increased in late November. Since demonetisation, only the Rs 2000 note has been in regular circulation.

Even on Rs 2000 currency note, 59% of the citizens are not using it often. 45% are using it only when its absolutely necessary and hoarding it anticipating future cash crunch. And 14% say they are keeping it for emergency and not using it at all. While 41% are saying that they are using it frequently. This is having an impact on spending per-se as cash transaction have dropped down. In an earlier survey done by LocalCircles 48% citizens had admitted to spending less and 60% of the spending reduction can be attributed to not enough currency in circulation while the remaining 40% can be attributed to uncertainty. Since 59% of the citizens are not using the Rs 2000 note frequently, as a result the velocity of transactions are going down. In a related LocalCircles survey, 90% of the traders have seen a decline in their business with 44% reporting business decline between 30-90%.

This problem feeds on itself and created a vicious cycle. If the transactions of cash currency do not increase it will not make people confident enough to spend their cash. Which is why even RBI has urged citizens to not hoard currency, promising enough currency notes.

The collateral damage on spending will in the short run have an impact on the GDP of the country which is why it is important for the government to look at pumping in Rs 500 notes into the banking system.

Enclosed are the poll details: