India removed all limits on cash withdrawals this week, ending its demonetization period.
The government had imposed strict limits on cash withdrawal amounts after its initial announcement last November.
The Indian government had multiple goals with its demonetization effort. Officials said they wanted to address corruption and flush what is known as “black money” out of the system. But the lack of cash also increased demand for digital payments at the same time the government has been aggressively promoting a move to a digital economy.
The move spurred activity from providers such as Indian payment facilitator Paytm racing to meet the increased demand for digital payments.
While digital transactions rose sharply after demonetization, data from the Reserve Bank of India shows cash making a return.
According to Firstpost, RBI data indicated the number of digital transactions has been falling since December. At the same time, the amount of cash held by the public has continued to rise.
“What does this mean? The only reason why currency with public declined so sharply post-demonetisation was simply due to the reason that there was no cash available, not because people said goodbye to cash and embraced digital transactions,” the article said.
It remains to be seen whether the temporary reliance on digital transactions laid the groundwork for future growth. A few months isn’t long to change the ingrained habits of an entire population.
While demonetization provided a temporary boost to the digital economy, the long-term prospects will likely depend on where financial technology companies and the Indian government go from here.
Some banks are levying new fees on cash withdrawal and deposit transactions, in an effort to dampen enthusiasm for cash, according to a report in the Financial Times.
In February, Business Standard reported on a survey of Indian citizens in which 68% said that most of their transactions were still in cash three months after demonetization. They told researchers that high transaction charges and a lack of POS terminals were among the reasons.
Respondents recommended low transaction fees and more promotion of electronic options.