An economy’s ATM capacity serves as a proxy for the opportunity cost of holding cash, which is influenced by several variables, some of which may not be financial. Rapidly expanding economies typically have a higher growth in transaction demand. Inflation and interest rates have an impact on the costs of holding cash, but this has to be seen in the context of financial inclusion. Demographics also have an impact, as an ageing population tends to have a bigger need for cash. The composition of currency notes in circulation alters attitudes towards hoarding cash in large-denomination notes.
China is the first major economy to have reduced the share of cash in circulation relative to nominal GDP. But, then, it is streets ahead of other economies in online transactions. India is a distant second, and the scale of its digital transactions has not reached the point where it begins to shrink demand for cash. However, since its digital transaction infra is publicly funded, it can be scaled up faster through policy intervention. A less-cash economy is some way off but not too far on the horizon, which can be brought closer by accelerating the pace of the digital economy.