Sunday, March 22, 2015

Issuance of Currency

According to RBI Act 1934, Section 22, RBI has the sole right to issue bank notes of all denominations. RBI is responsible for the design, production and management of the currency of India, with the goal of ensuring an adequate supply of clean and genuine notes.

The responsibility for coinage vests with the Government of India on the basis of The Coinage Act, 2011. RBI acts as an agent of government which merely distributes the coins in the market.

Currently, RBI has issued currency notes in the denomination of Rs. 10, 20, 50, 100, 500 and 1000. However, it can issue notes with denomination up to Rs. 10,000, as per the provision of RBI Act, 1934.

Coins are presently being issued by the government in the denomination of 50 paise, Re. 1, Rs. 2, 5, and 10. Coins up to 50 paise are called 'Small coins' and Rupee 1 and above are called 'Rupee coins'. Coins can be issued up to the denomination of Rs. 1000 in terms of The Coinage Act, 2011.

  • Small and Rupee Coins - Government of India
  • Rupee One banknote - Government of India (signed by Finance Secretary)
  • Banknotes above Rupee One - Reserve Bank of India (signed by RBI Governor)

Minimum Reserve System to issue currency
India adopted Minimum Reserve System in the tenure of RBI governor Sir Benegal Rama Rau in 1957. In this system, RBI is required to maintain a minimum reserve of Rs. 200 crore in gold and forex, of which at least Rs. 115 crore should be in gold form (earlier India followed Proportional Reserve System) to issue currency in India

(Note that the above figure may be outdated!)

Determination of volume and value of banknotes to be printed
RBI based on the demand requirement indicates the volume and value of banknotes to be printed each year to the government which get finalized after mutual consultation.

The quantum of banknotes to be printed depends on the followings -
  • Requirement for meeting the demand of banknotes
  • GDP growth
  • Inflation rate
  • Replacement of Soiled and Mutilated notes
  • Reserve Stock requirements, etc.

Notes and Coins production
  • Notes are printed at 4 Printing Presses, located at - Nashik, Dewas, Mysore and Salboni
  • Coins are minted at 4 Mints, located at - Mumbai, Noida, Kolkata and Hyderabad

Currency circulation
RBI currently manages the currency operations through its -
  • 19 Issue Office located at - Ahmedabad, Bengaluru, Belapur, Bhopal, Bhubaneswar, Chandigarh, Chennai, Guwahati, Hyderabad, Jaipur, Jammu, Kanpur, Kolkata, Lucknow, Mumbai, Nagpur, New Delhi, Patna, Thiruvananthapuram
  • A wide network of Currency chests
The Issue offices receive fresh banknotes from the printing presses of RBI, and then send the notes to the designated branches of commercial banks.

Currency Chest - RBI has authorized select commercial bank branches to establish currency chests, which would act as storehouses for banknotes and rupee coins on behalf of RBI. These chest branches are expected to distribute banknotes and rupee coins to other bank branches in their area of operation.

Small Coin Depot - Some bank branches are authorized by RBI to establish Small Coin Depot to store Small coins (i.e., below Rupee 1 coins), which will distribute the coins in their area of operation.

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