The RBI said that the ‘currency demand paradox’ of banknotes in circulation going up even as digital payments soar is driven by cautious households. According to the RBI, households are holding more high-value currency at home even as they substitute lower-value currency with digital transactions. “While the UPI-led retail digital payments grew at a compound annual growth rate of 50% and 27% in terms of volume and value, respectively (during 2016-17 to 2021-22), the currency in circulation-to-GDP ratio also rose and peaked at 14.4% in 2020- 21,” RBI said in its annual report. The RBI also said that the demand was primarily for a precautionary motive and recent data suggests a turnaround in the pandemic-induced precautionary demand for cash. For 86 weeks since August 2021 (barring April 2022), currency in circulation has grown in single digits year-on-year. The value and volume of banknotes in circulation increased by 7.8% and 4.4%, respectively, during 2022-23 as compared with 9.9% and 5%, respectively, during 2021-22. In value terms, the share of Rs 500 and Rs 2,000 banknotes together accounted for 87.9% of the total value of banknotes in circulation as on March 31, 2023, as compared to 87.1% as on March 31, 2022.