Money is the basis of all economic activities on which the world is thriving. Man began trading by exchanging goods, known as the barter trade. As knowledge spread and trade grew with advancement of civilizations, we moved on to gold as basis of exchange. The modern paper currency too was initially based on gold standard. A nation issued currency depending on its stock of gold reserves. As gold became scarce compared to the demand for money, the gold standard for printing note and coins too was given up. Now the printing of currency notes and coins in any country depends totally on the demand for money in the country. The role of printing currency notes and minting coins is of the Central bank of the country, which is The Reserve Bank of India (RBI) in India.
Role of RBI In currency management- The RBI manages the domestic currency, in consultation with the government. The government, on the advice of the RBI, decides on the various denominations of notes and coins. The RBI also co-ordinates with the government in the designing of the bank notes and the security features of the notes. The RBI also decides the quantity of currency notes to be printed each year.
Printing of currency notes- Based on the requirement of notes, the RBI places the indent with the various security presses through the Government of India. The notes received from the presses are issued and a reserve stock maintained. In India, currency notes are printed at
- Currency Note Press, Nashik
- Bank Note Press, Dewas
- Bharatiya Note Mudra Nigam (P) Limited, Salboni
- Bharatiya Note Mudra Nigam (P) Limited, Mysore
- The Watermark Paper Manufacturing Mill, Hoshangabad.
Basis of determining the quantity of currency notes to be printed
Demand for money decides the supply of money in modern economies. The RBI estimates the demand for bank notes on the basis of –
- Growth rate of the economy- The growth rate of an economy is an indicator of the level of economic activities in the economy, which generate the demand for money. A high growth rate indicates an expanding economy, where there will be greater demand for money for investment purposes.
- Replacement demand- Paper currency gets mutilated, soiled and unfit for use over time. Such currency has to be removed from circulation and replaced from time to time.
- Reserve requirement of the bank
- Inflation- More money in circulation would mean more money in the hands of people. This will in turn lead to high demand for goods and services resulting in inflation. Country’s borrowings from World bank, IMF and other countries, foreign investments all bring in money to the country. If these remain un-utilized, it adds to the country’s money supply. The RBI thus has to issue only that much money that maintains a reasonable purchasing power of the currency.
- Public expenditure requirement- In case of additional needs for public expenditure like building roads, hospitals, schools etc., the RBI estimates the expected economic return to the nation. In justified cases only additional notes are printed.
The RBI estimates the demand for money needed for circulation purposes, replacement and reserve requirement by using statistical models.
Need for new denominations and design of currency notes and coins
Currency notes of Re.1 & Rs. 2 and coins of 10 p, 20p etc. are out of circulation and new ones like Rs. 500 and 1000 notes and coins of Rs. 2, 5 and 10 have come into circulation. Some denominations are removed from circulation and new ones are introduced by the central bank, to keep pace with the demand for money based on its purchasing power. Another important reason is to increase the life of the notes and coins in circulation. Volume-wise the share of such small denomination notes like Re. 1 and 2, in the total bank notes in circulation was very high. But in terms of value they constituted a very small percentage. And as these small denomination exchanged hands more frequently, there average life was found to be less than a year, which meant that the cost of printing and servicing these notes was costlier. These denominations were thus coinized for longer life.
The designing is done keeping in view the authenticity and security against copying and printing of fake notes.
Minting of coins- The Government of India decides upon the quantity and designing of coins of different denominations to be minted, on the basis of indents received from the RBI. The responsibility for coinage vests with Government of India on the basis of the Coinage Act, 1906 as amended from time to time.
Distribution of notes and coins- To facilitate the distribution of notes and coins, the RBI has authorized selected branches of commercial banks, all over the country, to establish currency chests. These are like storehouses where notes and coins are stocked on behalf of the RBI. At present there are 4422 currency notes chest and 3784 small coin depots, spread all over the country, which distribute the notes and coins to other bank branches in their area of operation.
Notes & coins unfit for circulation- Notes received from banks and currency chests are examined. Those that are fit for circulation are re-issued and the others are destroyed, so as to maintain the quality of notes in circulation.
Bank notes and coins returned from circulation are deposited at the issue offices of the RBI. The RBI subjects these to processing, authenticates banknotes for their genuineness, segregates them into notes fit for re-issue and those which are not, for cancellation. Those which are unfit for reissue are destroyed by way of shredding after completion of examination process. Coins unfit for reissue are sent to the mints for melting.