Uttar Pradesh, Tamil Nadu and Maharashtra were the top three states which saw maximum cash movement through their currency chests in May, reflecting the demand for both credit and deposits in the states with the biggest populations and subnational economies, respectively.

Latest central bank data also showed that five states accounted for around 40% of the Rs 2.97 lakh crore worth of cash deposited and Rs 3.29 lakh crore withdrawn through the currency chest in the respective states.

While the digital payments ecosystem in India has taken off, the demand for currency persists—a trend accentuated by the pandemic. But a recent research paper by central bank economists shows that the simultaneous increase in digital payments and currency in circulation might appear paradoxical, with income being the dominant driver of currency demand in India.

The research paper says that the rapid growth momentum in digital payments, combined with its statistically significant inverse association with cash, has the potential to moderate the positive income effect