In a series of tweets, Mr Chidambaram said as a rule, cash supply must grow at the same rate as the economy is growing and the government was obliged to provide as much cash as people need at any given time.
"A government is obliged to provide as much cash as the people need at any given time. Government or RBI cannot arbitrarily control the supply of cash. If RBI has injected sufficient cash, it is obliged to tell the people why there is a cash shortage," he said.
Mr Chidambaram alleged the cash shortage may be because cash supply had been "arbitrarily reduced".
Currency shortage was reported from several parts of Andhra Pradesh, Telangana, Madhya Pradesh, Chhattisgarh, Bihar and poll-bound Karnataka, among other states. Several ATMs in the national capital also saw long queues and soon ran out of cash.
Finance Minister Arun Jaitley said the "temporary shortage" in certain states was being "tackled quickly" and that there was "more than adequate" currency in circulation.
In a statement, the Finance Ministry acknowledged there had been an unusual spurt in currency demand in the country in the last three months, but did not give specific reasons.
It has also decided to ramp up the supply of new Rs 500 notes, even as reports suggested that Rs 2,000 notes, which are easier to hoard, were particularly impacted by the shortage.