History of currency usage in India

RBI recently set up a mill to make paper for bank notes. The event led to some facinating stattistics and facts about currency usage in India.

The demand and supply of currency is something like this:

  • Since the time the Reserve Bank was established, the value of notes in circulation in the country has increased from about Rs. 172 crore in 1935 to more than Rs.7,00,000 crore in 2009.
  • In terms of volume, notes in circulation have increased from 124 million pieces in 1935 to more than 51 billion pieces in September 2009.
  • In 2008-09, the Reserve Bank got 15 billion notes printed through the four printing presses. In the current year, it has indented for about 17 billion notes requiring approximately 18000 MT of banknote paper.
  • India currently only makes 5% of the paper for bank notes. Major countries like USA, Japan, China, Brazil, Russia and countries in the euro area and even smaller countries like South Korea, Indonesia, Iran and Pakistan  make their own bank note paper.
  • This Mysore Mill will help produce 6000 MT of paper by 2012 and 12000 MT by 2013, making India somewhat self sufficient to make its own paper.

Great stuff.

Governor Subbarao makes another interesting speech (he is making giving super speeches a nice habit) looking at history of currency usage in the country.

 Currency/bank notes are among the most mass-produced commodities in the world. The genesis of paper money is generally attributed to the token money that evolved around the 10th century in China. In India, the enthusiastic experiment by Muhammed Bin Tughlaq in the 14th century to issue token money and replace silver taka with copper, though a genuine monetary experiment, ended in disaster.

Use of paper money started in the West in the 17th century. However, paper currency did not catch on in India because of the political turmoil following the collapse of Mughal Empire in the 17th century. Early currency in the form of ‘I owe you / promissory notes’ issued by banks or royal courts made appearance in India only in late 18th  century.  Among the early issuer of bank notes in India were Bank of Hindostan (1770-1832), the General Bank of Bengal and Behar (1773-75), the Bengal Bank (1784-91), the Commercial Bank, etc. Use of bank notes, however, became widespread only after the semi-government Presidency Banks started issuing notes, notably the Bank of Bengal which was established in 1806. These banks were established under a Government Charter and were required to observe some prudential norms like cash reserve, maximum exposure limit, limit for note issue, etc.

Use of official Government of India paper currency commenced in 1861 with the enactment of the Paper Currency Act. The management of currency across the Indian sub-continent was evidently a huge task, requiring creation of currency circles. The Presidency banks were made agents for issue and redemption. In 1913, the Office of Controller of Currency was established replacing the Currency Department in the Government. In 1935, Reserve Bank of India was created which took over the function of note issue from the Controller of Currency.

Indian Currency notes were printed in England till late 1920s. Recognising that production of currency notes is a strategically important activity, the then Government of India set up a currency printing press at Nashik in Maharashtra in 1928. This was followed by the setting up of another press at Dewas in Madhya Pradesh nearly fifty years later in 1975.

Meanwhile, in 1967, a security paper mill with a capacity of 1500 metric tonnes per year was established at Hoshangabad in MP.

By the late 1980s, the demand for currency notes exceeded the capacity of the two Government note presses. To meet the demand-supply gap, at the instance of Government of India, the Reserve Bank established, in 1996, two currency presses – this one here in Mysore and the other at Salboni in West Bengal. These were set up through a wholly owned subsidiary of RBI viz. the Bharatiya Reserve Bank Note Mudran Pvt. Ltd. (BRBNMPL). By 1999, the BRBNMPL’s two new presses started working to their full capacity making the country self reliant once again in currency note printing.

Wow. So there are two main activities in currency management. One production of paper for bank notes and two printing currency details on the paper.

He speaks on two other issues – to keep clean notes in the system and do away with fake notes.

Counterfeiting of money is almost as old as printing of currency. At some period in history, it was considered treasonous enough to warrant punishment by death. It was in 1650 AD that paper money was developed and counterfeiting flourished, especially within America where counterfeit money was more common than genuine money. Counterfeiters had become so skilled that when the first federal coins were issued by the US Government in the 1780s, they had the dies cut by an ex-counterfeiter. However, it was the advent of colour copiers and other electronic devices in late twentieth century that made counterfeiting easier. Around the world, governments are locked in a fierce race with counterfeiters to keep that one crucial step ahead in terms of technology and security features. Governments are also tightening measures to check counterfeiting, apprehend counterfeiters and impose deterrent and harsher punishments.

He also adds that RBI would issue notes made out of Polymer as they are cleaner and can be recycled as well.

3 Responses to “History of currency usage in India”

  1. K R Vaikuntam Says:

    They havent quite set up the mill. They laid the foundation stone for one

    – Vaikuntam

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    History of currency usage in India | Mostly Economics

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