Currency Management

The Reserve Bank gets its role in currency management from the Reserve Bank of India Act, 1934. The Government of India, on the aid-advice of the Reserve Bank, decides on various denominations of banknotes to be issued. The Reserve Bank also co-ordinates with the Government in the designing of banknotes, including various security features.

Tasks of RBI related to Currency Management

The Reserve Bank of India (RBI) has the task of issuing, managing and distributing currency notes and coins. The Reserve Bank manages currency in India on the basis of the Reserve Bank of India Act, 1934.

  • The Government, on the advice of the Reserve Bank, decides on the various denominations.
  • The RBI also co-ordinates with the Government in the designing of bank notes, including various security features.
  • RBI estimates the quantity of notes that are likely to be needed denomination-wise and places the indent with the various presses through the Government of India. The Indian Statistical Institute (ISI) conducts studies to refine the demand estimation model then helps RBI forecasts demand for currency notes.
  • The notes received from the presses are issued and a reserve stock is maintained.
    • RBI distributes notes and coins through bank branches called ‘chests’. Currency chests and coins depots are managed by commercial, operative and regional rural banks. SBI manages the highest number of currency chests – 1965
    • Banks officials are responsible for movement from chest to a branch. Chests distribute currencies to branches depending on specific demand. Branches demand currencies based on business volume.
    • Banks replenish cash into ATM based on daily withdrawal propensity. Many banks outsource tasks of replenishing off site ATMS.
    • Currency flows to Printing presses then to RBI offices, currency chests, bank branches and public.
    • Notes received from banks and currency chests are examined. Notes fit for circulation are reissued and the others (soiled and mutilated) are destroyed so as to maintain the quality of notes in circulation. RBI disposed 16.4 billion soiled notes and issued fresh ones against these in 2015-16.
    • While a soiled bank note can be exchanged for full value, a mutilated note can be exchanged for full value or half, depending on the degree of mutilation
    • Coins do not come back from circulation, except those which are withdrawn.

Constitution of a High Level Committee on Currency Management

To address the significant challenges faced in India and other related issues, a High Level Committee which was constituted by Government of India (Chairman: Dr. K.C. Chakrabarty). The committee reviewed the forecasting methodology and studied the international best practices in cash distribution by other central banks. It made wide-ranging recommendations, notably:

  1. The RBI is to focus exclusively on the management and planning of the currency system while passing on the responsibility for the distribution of banknotes and coins entirely to commercial banks;
  2. The need to introduce private entrepreneurs for the distribution of banknotes and coins on behalf of banks, if last mile connectivity for distribution has to be achieved;
  3. Identification of a bank willing to assume leadership of the currency management function in the district, etc. All these recommendations have been accepted and are at various stages of implementation.

Process of Movement of Currency

Indian Rupee Notes are printed in four presses. The Security Printing and Minting Corporation of India (SPMCIL) has presses at Nashik in Maharashtra and Dewas in Madhya Pradesh. The other two are owned by RBI, through a subsidiary, Bharatiya Reserve Bank Note Mudran (BRBNML), at Mysuru, Karnataka, and Salboni in Bengal. Coins are made at four government-owned mints at Mumbai, Hyderabad, Kolkata and Noida. The RBI gets new currency notes from ‘four currency note printing presses’ and coins from ‘mints’.


Present Denominations of Bank Notes in India

Of late, notes in India are issued in the denomination of Rs 5, Rs 10, Rs 20, Rs 50, Rs 100, Rs 200, Rs 500 and Rs 2,000. These notes are called ‘bank notes’, as they are issued by the Reserve Bank of India. The printing of notes in the denominations of one rupee and Rs 2 has been discontinued. However, such notes issued earlier are still in circulation. The printing of notes in the denomination of Rs 5 had also been discontinued; however, it has been decided to reintroduce these notes so as to meet the gap between the demand and supply of coins in this denomination.

Where are the Indian Rupee Notes and Coins Made?

  • The RBI Act allows the central bank to publish notes of up to Rs 5,000 and Rs 10,000 denominations, but not more than that. The government has to approve before those notes are introduced. The highest denomination notes printed were of Rs 10,000 in 1938 and in 1954. These were demonetised in 1946 and again in 1978.
  • The amount of notes to be printed broadly depends on the demand, the economy’s growth, and replacement of soiled ones, reserve stock requirements, etc.The currency paper is composed of cotton and cotton rag. The papers are now largely made in India.
  • The average age of the notes are usually less than a year but depend on usage. Lower the value, higher the usage. For example, an Rs 10 note could last no more than 8 to 10 months, whereas an Rs 1,000 note could remain fresh for a long time, as these tend to be stored and used carefully.
  • The currency management infrastructure consists of a network of 19 issue offices, 4,034 currency chests (including sub-treasury offices and a currency chest of the Reserve Bank at Kochi), and 3,707 small coin depots of commercial, cooperative and regional rural banks (RRBs) spread across the country
  • Currency Chests: RBI is located only in 18 places for currency operations. RBI distributes notes and coins through bank branches called ‘chests’. To facilitate the distribution of notes and rupee coins, the Reserve Bank has authorised selected branches of banks to establish currency chests. These are actually storehouses where bank notes and rupee coins are stocked on behalf of the Reserve Bank.
  • Small Coin Depots: Some bank branches are also authorised to establish small coin depots to stock small coins. There are 3,784 small coin depots spread throughout the country. The small coin depots also distribute small coins to other bank branches in their area of operation.

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