Printing of fake notes or counterfeit notes is declining fast, especially since demonetisation in 2016. Data from the Reserve Bank of India (RBI) show that approximately ₹7.98 crore worth of counterfeit notes were detected in FY23. This is 68 per cent lower than ₹24.84 crore of fake notes found in FY14.

Counterfeit currency refers to imitation or fraudulent money created with the intent to deceive the system. Its presence can significantly impact the economy by devaluing legitimate currency and contributing to inflation.

The Chief Economist of the Bank of Baroda, Madan Sabnavis, said, “Counterfeit currency poses a constant threat to the economy. It often appears authentic in its features, making it difficult for people to differentiate between real and fake currency. By the time an individual realises it is counterfeit, it has already circulated further into the economy. This problem is prevalent worldwide, with significant political implications, such as the financing of drugs or terrorism through counterfeit currency.”

Sharp decline

The RBI data show that fake notes peaked in 2016-17 at ₹43.46 crore. This was the year when the demonetisation was announced. However, since then, it has declined sharply to ₹8.26 crore in FY22 and further to ₹7.98 crore in FY23.

Sabnavis adds, “The increase in security features to detect fake currency has made it more difficult for counterfeiters to bypass the mechanisms in place. This could be a reason why the incidence of counterfeit currency is decreasing.”

In a Lok Sabha debate, Minister of Finance, Pankaj Chaudhary, said, “The RBI issues various instructions to banks on measures to safeguard against forged notes. The RBI regularly conducts training programmes on detection of counterfeit notes for employees/officers of banks and other organisations handling large amount of cash. It has issued a Master Circular on detection and reporting of counterfeit notes, updated as on April 1, 2022.”

Fake notes

The data show that the most number of counterfeit notes were found in the ₹500 denomination. In FY22, around 79,669 fake currencies were detected, which increased to 91,110 fake currencies in FY23, representing a 14 per cent growth in counterfeit notes of the ₹500 denomination.

The ₹100 fake currency notes decreased to 78,699 in FY23 from 92,237 fake notes. Whereas, the third-highest currency note, ₹200, increased from 27,074 to 27,258 fake notes in the same time period.

The ₹2,000 denomination is legally out of use, and the ₹1,000 note was demonetised in 2016, yet counterfeit currency of these denominations have been found in the banking system.

Sabnavis explains, “Counterfeiters typically target higher denomination currency, which is why ₹500, ₹200, and ₹100 denominations are counterfeited more frequently than smaller denominations. Whereas ₹1,000 fake currency belongs to the pre-demonetisation period, which the RBI is still somehow finding in its system. The same goes for ₹2,000 fake currency, which is from the older series and is no longer in use.”

As a per cent of total currency in circulation, counterfeit notes make up a tiny fraction. The share of fake notes has gone down from 0.0194 per cent in FY14 to 0.0024 per cent in FY23.