Money & Banking

RBI mulls issuing plastic currency

Our Bureau Mumbai | Updated on February 25, 2011

To roll out Rs 10 denomination notes on pilot basis

The Reserve Bank of India is planning to introduce, on a pilot basis, plastic notes of Rs 10 denomination in the jurisdiction of five out of its 22 regional offices. Given that India is a large cash economy and producing such a large amount of currency is expensive, the RBI is exploring the option for economising by replacing paper currency with plastic currency as some countries such as Singapore and Australia have already done.

“Cost and longevity are important dimensions of currency management. We are a large cash economy; in fact, we are the second largest producer and consumer of currency in the world, next only to China. Producing such a large amount of currency is expensive. One option for economising is replacing paper currency with plastic currency,” said Dr D. Subbarao, Governor, RBI, in his Convocation address at the Sambalpur University on Thursday.

During the pilot phase, the RBI will not only study the relative costs but also the carbon footprint associated with the recycling and disposal of plastic notes vis-à-vis paper notes. If the pilot proves successful, it will mainstream the use of plastic currency.

In his lecture on ‘Reserve Bank of India: Making a Difference in Your Daily Life', the Governor, in a lighter vein, said: “Many people think of the Reserve Bank as a mysterious institution, a sort of monolith — doing obscure things that have no real relevance for the everyday lives of people. Others think that all that the Reserve Bank does is print currency, and wonder why, when short of resources, we don't just print more of the stuff. Some people think that all that the Governor does every day in office is sign currency notes, and that if there is shortage of currency, it is because he is slow in signing.”

Pointing out that the reality was quite different, Dr Subbarao said, the besides printing and distributing currency, the RBI also does a lot of other things.

“We are the monetary authority of the country. We are the gatekeepers of the external sector. We regulate and supervise banks, non-bank finance companies and segments of the financial markets to ensure that the money you keep in banks is safe and is productively deployed towards generating economic activity…The Reserve Bank is also the central bank, that is, the bank of banks and the bank of the Government of India as well as of State governments,” said the Governor.

Our Chennai Bureau writes:

High wear and tear:

The average life of the currency note in your purse is about a year. India being predominantly a cash economy, the circulation of such notes tends to be high. Given the number of times they change hands, there is high wear and tear. There are about 60 billion currency notes of various denominations in circulation now. The RBI grapples with the task of replacing damaged/soiled currency notes at regular intervals. Last year about 13 billion such notes were destroyed.

Given the rising costs of paper, the strain on mints which are already working at their rated capacity, and the threat of counterfeiting, the RBI has plans to introduce polymer/plastic currency notes in the country. This is supposed to be more durable, washable, recyclable and difficult to counterfeit.

Eight countries, including Australia, New Zealand, Vietnam, Romania, Bermuda, Brunei, Nicaragua and Papua New Guinea have converted their paper notes into polymer. Many others, including Hong Kong, Singapore, Indonesia and Thailand, have issued a few such notes and are experimenting with them.

Published on February 25, 2011

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