Cash Is King: The Role of Financial Infrastructure in Digital Adoption.

This article investigates whether a one-time, extensive, but temporary reduction in cash availability can spur the adoption of digital payments, focusing on India's 2016 demonetization that abruptly invalidated 86% of cash in circulation. Using novel administrative data on retail debit card transactions (specifically RuPay card usage) at the pincode level, the study finds that areas more severely affected by cash shortages—measured by their distance from currency chests—experienced a significant and persistent increase in digital payments, even after cash supply normalized. The adoption was primarily driven by consumers with prior financial experience and access to financial infrastructure, with limited evidence of retailer adoption of point-of-sale terminals or social network effects; information frictions and nontrivial adoption costs delayed immediate uptake. The findings suggest that financial infrastructure availability and household awareness are key facilitators of digital payment adoption, and that habit formation contributed to the sustained use of digital payments post-demonetization.