How Currency is Issued in India?
In India, the paper currency was first issued during British East India Company rule. The first paper notes were issued by the private banks such as Bank of Hindustan and the presidency banks during late 18th century. Via the Paper Currency Act of 1861, the British Government of India was conferred the monopoly to issue paper notes in India.
After this act, the government of India entered into agreements with the Presidency Banks to work as authorized agents to promote circulations of the paper notes across length and breadth of British India. But since India is a vast country, redemption of these notes became a issue soon. Consequently, some “Currency Circles” came up in various parts of country where the paper notes of Indian government were legal tenders.
In 1867, the agreements with the presidency banks were terminated. The job of promoting, circulating and redemption of the currency notes was entrusted to Mint Masters, Accountant General and the Controller of Currency. This practice continued till RBI came into existence in 1935.
Section 22 of the RBI Act 1934 makes provided that RBI has the sole right to issue Bank notes of all denominations. Thus, Reserve Bank is responsible for the design, production and overall management of the nation’s currency, with the goal of ensuring an adequate supply of clean and genuine notes. In consultation with the Government, the Reserve Bank routinely addresses security issues and targets ways to enhance security features to reduce the risk of counterfeiting or forgery of currency notes.
- 1935 : Currency Function moved from Controller of currency to RBI
- 1957 : Decimalization of coinage
- 1995 : RBI sets up printing Press
- 2000 : RBI mechanizes the currency processing
- 2005 : RBI introduces Machine-readable security features
Paper Currency Notes
At present, paper currency notes in India are issued in the denomination of Rs. 5, Rs.10, Rs.20, Rs.50, Rs.100, Rs.500 and Rs.1,000. The printing of Rs. 1 and Rs. 2 denominations has been discontinued, though the notes in circulation are valid. Reserve Bank of India has been authorized to issue notes of Rs. 5000 and Rs. 10000 also. In fact, as per RBI act, RBI can issue any note of any denomination but NOT exceeding Rs. 10,000. The notes denomination is notified by Government and RBI acts accordingly.
Issue Department and Currency Department
RBI has a separate department called issue department whose assets and liabilities are kept separate from the Banking Department. Currency Management function of Reserve Bank is carried out at the “Department of Currency Management” located at Central Office Mumbai. There are 19 Issue offices. RBI authorizes selected branches of Banks to establish Currency Chests and Coin Deposits. At present there is a network of 4281 Curency Chests and 4044 Small Coin Deposits.
Issue of Coins
The distribution of Coins is undertaken by RBI as an agent of the Government, (coins are minted by the Government and not by RBI). Coins up to 50 paisa are called “small coins” and coins of Rupee one and above are called “Rupee coins”.
Proportional Reserve System v/s Minimum Reserve System
Originally, the assets of the Issue department were to consist of not less than 2/5th of the Gold or sterling securities, provided Gold was not less than Rs. 40 Crores in value. Remaining 3/5th of the assets might be rupee coins. This was called “Proportional Reserve System”. In 1956, this system was changed. Now, RBI is required to maintain a Gold and Foreign Exchange Reserves of Rs. 200 Crore of which at least Rs. 115 Crore should be in Gold. This is called Minimum Reserve System. This system continues till date.
Currency chests are storehouses where bank notes and rupee coins are stocked on behalf of the Reserve Bank. The currency chests have been established with State Bank of India, six associate banks, nationalized banks, private sector banks, a foreign bank, a state cooperative bank and a regional rural bank.
Deposits into the currency chest are treated as reserves with the Reserve Bank and are included in the Cash Reserve Ratio.
Locations of Note Printing Presses:
The Security Printing and Minting Corporation of India Limited (SPMCIL) prints the notes. It is a wholly owned company of the Government of India. Its printing presses are located at Nasik (Maharashtra) and Dewas (Madhya Pradesh). Apart from that, the Bharatiya Reserve Bank Note Mudran Pvt. Ltd. (BRBNMPL), a wholly owned subsidiary of the Reserve Bank, also has set up printing presses. The presses of BRBNMPL are located at Mysore in Karnataka and Salboni in West Bengal.
Security Printing and Minting Corporation of India Limited (SPMCIL) has 4 mints for coin production located at Mumbai, Noida, Kolkata and Hyderabad.
Coins and notes as Legal Tenders:
One Rupee Note and One Rupee coins are legal tenders for unlimited amounts. 50 Paisa coins are legal tender for any sum not above Rs. 10. The coins of smaller than 50 paisa value are legal tenders of a sum below Re. 1.
Star Series Notes
The Star series notes are currently issued in Rs. 10, 20, 50 and Rs. 100. These notes are issued to replace the defected printed notes at the printing press. They have an additional character of a star and the bundles are NOT in series. Rest all the features are same.
Languages on Currency Notes
The amount of a banknote is written on it in 17 languages out of 22 official languages of India. The languages are Assamese, Bengali, Gujarati, Kannada, Kashmiri, Konkani, Malayalam, Marathi, Nepali, Oriya, Punjabi, Sanskrit, Tamil, Telugu and Urdu.