The Reserve Bank of India (RBI) has attributed the rising demand for banknotes to a strong preference for cash among individuals and small merchants, as revealed in an internal survey on payment behavior. The currency-to-GDP ratio increased to 12.1% in FY26 from 11.7% in FY25, reflecting sustained demand for physical currency.
Currency Circulation Trends
The value of banknotes in circulation rose by 11.9% to Rs 41.24 lakh crore as of end-March 2026, while the volume of notes increased by 10.5% to 17.13 lakh pieces. Coin circulation also expanded, with value rising 11.4% to Rs 40,814 crore and volume up by 4.5%. Following the near-complete withdrawal of Rs 2,000 notes, of which 98.45% has returned to the banking system, the Rs 500 denomination has become the backbone of the cash economy. It accounted for 41.2% of total notes by volume and 85.5% by value, far outpacing other denominations.
Counterfeit Notes and Security Measures
The surge in high-value notes has coincided with a shift in counterfeiting patterns. The total number of fake Indian currency notes detected increased to 2,29,746 pieces in FY26 from 2,17,396 a year earlier, driven largely by a 20.5% jump in counterfeit Rs 500 notes to 1,41,907 pieces. Counterfeit detections in most other denominations declined, with banks detecting 97.6% of all fake notes. To combat this, the RBI plans to introduce upgraded banknotes with enhanced security features in a phased manner from mid-2026. Additionally, the central bank has developed anti-microbial and anti-bacterial treatments integrated into currency paper to improve hygiene and durability.
Varnished Banknotes Trials
In parallel, trials for varnished banknotes aimed at extending the life of currency are underway at the Mysuru facility of Bharatiya Reserve Bank Note Mudran Private Ltd, signaling a shift towards more durable alternatives.
Decline in Printing Expenditure
Despite higher circulation, the RBI's currency printing expenditure declined sharply to Rs 4,875.2 crore in FY26 from Rs 6,372.8 crore in the previous year. This reduction is attributed to the central bank reducing its indent for fresh notes to 2.81 lakh pieces from 3.03 lakh pieces, leading to lower operational costs.
Enduring Role of Cash
The internal RBI survey on payment behavior reaffirmed a continued strong preference for cash among individuals and small merchants, underlining the enduring role of physical currency in the economy despite rapid growth in digital payments.
