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Why Suddenly There is No Cash in ATMs

Apr 11, 2017

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Over the last few days there have been a spate of media reports about cash not coming out of ATMs. "Bengalureans were greeted with 'No Cash' boards at most ATMs on Monday [April 10,2017]," reports the Deccan Chronicle.

"The arid days of demonetisation are back to haunt Mumbaikars. Ten days after the banking sector's yearly closing on March 31, ATMs continue to run dry across the city," reports The Times of India.

The New Indian Express reports that the cash crunch has made a comeback to the city of Visakhapatnam, with majority of the ATMs running out of cash.

"Although the new financial year is in its second week, a majority of ATM kiosks in Pune continue to run dry while citizens run from one kiosk to another to withdraw cash," reports The Indian Express.

The Hindu reports that "cashless ATMs and serpentine queues outside banks have once again become the norm," in Hyderabad.

I guess I will stop here. This is enough to establish that there really is a problem and currency at ATMs is in short-supply.

So, what is happening here? The explanation that has been offered is that this cash shortage has been because of the March 31st, year-end for banks. While that clearly might be a reason, there are other reasons at work here as well. Allow me to explain.

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Since January 2017, the currency in circulation has been increasing every week. This has been happening with the printing presses of the Reserve Bank of India and the government, printing and pumping money into the financial system through banks. Take a look at Figure 1.

Figure 1

As can be seen form Figure 1, the currency under circulation has been going up from January 6, 2017, as the RBI and the government have printed and pumped money into the financial system.

But is that enough? What we also need to take a look at is the rate at which the currency in circulation has risen week on week since January 6, 2017. How is this obtained? The currency in circulation as on January 6, 2017, was at Rs 8,98,017 crore. This increased to Rs 9,50,803 crore as on January 13, 2017. This meant a jump of Rs 52,786 crore or around 5.9 per cent (Rs 52,786 crore divided by Rs 8,98,017 crore). A similar calculation is carried out for the remaining weeks as well.

Take a look at Figure 2. It plots the rate at which currency circulation has been increasing week on week since January 6, 2017.

Figure 2:

Figure 2 makes for a very interesting reading. The highest increase in the rate of increase in currency circulation came in the period of one week ending January 13, 2017, at 5.9 per cent. Since then the overall trend has been down, with jumps in between. Having said that, the rate of increase in currency circulation has seen a downward trend between March 10 and March 31, 2017.

The rate of increase in currency in circulation for the week ending March 31, 2017, was at the lowest level since January 2017, at 1.7 per cent. What does this mean? It means that the RBI is not releasing currency to the banks at the same pace as it was in the past. The rate of currency release at RBI's level has come down. And that basically means banks don't have enough currency/cash to load into ATMs as they had in the past.

This explains why there has been shortage of currency at ATMs. It could also mean that the RBI and the government printing presses are not printing as much currency as they were doing in the past. Why is this happening is something only the central bank and the government can explain.

If this is being done knowingly to bring down the total amount of currency in the system, then it's a rather stupid move. Any economy needs a certain amount of currency to function. The Indian economy as of now does not have an adequate amount of it. The total currency in circulation as on March 31, 2017, was at 74.3 per cent of the level of the pre-demonetisation level. Unless we get back to a similar level, some currency shortage is likely to continue.

If the government decides not to print and pump in as much currency as there was in the pre-demonetisation era, it will have an impact on the total number of economic transactions carried out in the economy. And that possibly is not a good thing.

Further, the fact that ATMs are running out of cash tells us that the demand for currency continues to be high. This basically means that the digital medium of payments hasn't really caught on despite the best efforts of the government.

To conclude, as the old jungle saying goes, when you don't know where you are going, the journey is the reward.

Vivek Kaul is the Editor of the Diary and The Vivek Kaul Letter. He is the author of the Easy Money trilogy. The books were bestsellers on Amazon. His latest book is India's Big Government - The Intrusive State and How It is Hurting Us.

Disclaimer: The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Equitymaster do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. Please read the detailed Terms of Use of the web site.

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24 Responses to "Why Suddenly There is No Cash in ATMs"

RAVINDRAN SRINIVASA RAGHAVAN

Apr 21, 2017

I hardly give importance to Vivek kaul mail.His articles are one sided and carries no value.
He follows the The Hindu editor who is Modi baitor and marxsist inclained.

Like (1)

Madhu

Apr 19, 2017

This is a " stupid" article, rightly in tune with many such articles written by this author. As is his wont, he is drawing hasty conclusions and desperately trying to establish that the " best efforts of the Government" came to nought. He also gives an impression he will be ecsatatic if all such noble moves fail.

Like (2)

Krishna

Apr 13, 2017

The quality of this article is tainted because of words like 'Stupid' policy. This is not backed up by any data. If the author can back up his comment with figures like what is the cash component per person needed to keep the economy going it would have been appreciated.

Like (4)

R Gopalan

Apr 12, 2017

The currency shortage may be due to renewed hoarding by habitual black money creators. Only
Y recently the had to deposit all currency or lost some. So they may be replenishing by systematic withdrawal. Also we see many of the traders who were using electronic mode of payments (out of compulsion) have reversed to cash mode. They will only renew the black money vaults and avoid tax etc. Any hard measure to contain such practices are publicised as anti people by vested interest.
I agree with Mr Narayan that govt may have stopped 2000 notes and rightly so. Needs to be studied.

I am surprised to see site like yours too criticise demonisation and other hard steps. With majority of populace averse to pay any tax the govt. is helpless. Of course serious efforts to curtail political funding in cash is the need of the hour and agree with you as you have called for earlier. With the imperfect democracy and imperfect fourth estate good measures take time to get implemented how high may be the good intentions.

Like (2)

Kurian M J

Apr 12, 2017

Public murmur is that govt and RBI may be withdrawing cash so that apps like Bhim and paytm survive

Like (2)

Narayan

Apr 12, 2017

There is a distinct possibility that the government has stopped printing higher denomination notes (Rs 500 and Rs 2000) and is introducing only notes of lower value into circulation? After all, high denomination notes are not really needed for petty expenses and the cashless mode is desirable when it comes to all legitimate high value transactions. The aam aurat/aadmi does not really need Rs. 2,000 notes, does s/he?

Has there been a drop in terms of the amount of notes entering the system? I wonder if the meticulous Mr. Kaul has taken this factor into consideration.

I, for one, think that there is a distinct possibility of a second round of demonetization to mop up all the black money that is yet to be mopped up due to the Indian genius for circumventing laws. When it happens, there will definitely be no shortage of Rs.100 notes. Hoarding crores of ill-gotten wealth in low denomination notes does not make sense, does it?

Like (2)

Varghese. V

Apr 12, 2017

When there is shortage of currency at ATMs / Banks, the tendency is to hold back what ever currency is on hand. This will lead to hoarding of some currency for urgent use. You can imagine the amount if each individual in India holds back Rs.1000/-. Hence making available adequate currency will only help to proper distribution of the currency in circulation.

Like (2)

s.b. lal

Apr 11, 2017

what you have written about dry ATMs seems to be applicable to South India, for some reason.
There is no shortage in ATMs in Noida anywhewre. As a matter of fact there is hardly any queue to be seen.

Like (2)

sushant mittra

Apr 11, 2017

Currency is
not being printed because of likely shortage of currency paper and printing ink since this was not planned
. Currency circulation has gone short because hoarding by the new set of corruption cycle.

Like (2)

Sunil Godse

Apr 11, 2017

Some currency also must have gone to R.K Nagar (by election) in Tamil Nadu.!!!

Like (1)
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