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Sunday, September 16, 2012

Can having tonnes of cash floating around the economy be bad? Definitely, if this money cannot be accounted for. According to a Reserve Bank of India (RBI) official, this can lead to myriad problems. The central bank is now focused on bringing down the cash component in the economy. If India moves to a cashless, or more plastic society it can solve corruption, monetary policy transmission issues, and cash management for banks. Currently, the amount of cash circulating in the system is around 14% of GDP. This makes India one of the highest cash markets. The implementation of communications and technology solutions such as mobile and online banking, electronic fund transfers etc can help bring down the reliance on cash. Both the government and RBI are making efforts to address this problem. Well, with the government in the soup over corruption allegations, this may be a welcome step.

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