The published articles are meant to primarily educate the students in printing to supplement their knowledge in the field of Printing. These are not simple Glossary of printing terms, but to the extent possible every term has been explained in brief so that it can be of some use to the students who appear in some sort of examinations and interviews.
I served the Printing Industry for over 40 years
in various capacities, a major part in an Security Printing Organization. In order not to waste the printing and paper related knowledge which I gained over years, I decided to keep them in public domain for the reason stated in prepara. Most of the illustrations - over 90% - have been generated by me to explain the terms suitably.
While I am not sure to what extent the published content will help, if the content is going to be of use to some one in some manner, I will be greatly satisfied.
Your views may be sent to me (
nrj_1945@yahoo.com) for my record and correction wherever needed.

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Saturday, November 30, 2013

An analysis on Printing and circulation of Paper Money -4

Circulation of Paper Money via-a-vise
 Quantum of Paper Money  
printed and processed
-Analysis-

( Written by : N. R. Jayaraman) 

- 4 -

One must understand that the Demand and Supply of Currency also depends on Country specific circumstances such as sociological, cultural, technological and economic factors. India being highly orthodox in lifestyle, has her population more in villages, higher percentage of migrant workers moving from one zone to other preferring cash transactions rather than electronic modes of transactions, people not mentally fully geared up to accept the modernized payment systems etc, etc caused higher demand for liquid cash or Currencies. No doubt India is in the threshold of industrial and technological development and it may take many more years before her people begin to fully accept Cashless form of transactions by opting electronic means like other European and Asian countries. May be this is one of the reasons why the annual growth rate of Currency circulation has been very high in India along with Thailand and Indonesia compared to other countries as may be seen from the following data:


(Ref :- Modeling Currency Demand in India: 
An Empirical Study- by Development Research Group of RBI)

The ever fast growing volume of Currency posed serious problems to Reserve bank of India, not only in production and putting them into circulation with a well organized mechanism, but also in salvaging the Soiled notes into usable and unusable category, all of  which came back to the banks  for re circulation or to destroyed as unserviceable notes without reaching the hands of public again.  Ever since the RBI was established, Bank Notes in circulation which was in the range of 100** million pieces in the year 1935 rose to over 18500** million pieces of Bank notes in the year 1975 (** Ref : Chapter-1/ Introduction /Para 1.3 / Report of the Committee on Currency Management). There is a slight variation in the figure brought  by the Expert Committee and the RBI Database statistics which show the issued/ circulated Bank Notes as 18288.7^^ million pieces (^^Ref:- Database on Indian Economy/ RBI Data Warehouse: Table 159 : Notes and Coins Issued). However the difference being minor, this variation is ignored and RBI Database figure taken as authentic for later calculations. 

Finding  infrastructural facilities including the staff position remaining disproportionate to process the ever increasing supply and demand for Bank Notes, the RBI  in deference to the wishes of the then Governor of  RBI who desired that a high power Committee be constituted to go into the entire gamut of issues in the area of Currency Management, constituted a Committee in December, 1988 under the Chairmanship of Shri P.R. Nayak, Deputy Governor to study all aspects and recommend in respect of Currency Management. In over nine sittings spread over few months, the Committee studied various aspects of the Issue and Circulation of Bank Notes and Coins and gave a report in the year 1989.   Some of the observations in the report are interesting to read. See below for details:

Quote:

Para 2.1 :- ''The increase in the value of currency notes since 1970 and the growth of volume are illustrated in Fig.....(projection of bank notes shown below) . A sharp break in the rates of growth is observed from 1975. In the decade of the 1980's, the value has grown by about 90% every five years and the volume, by more than 50%, indicating that the higher denomination notes were growing faster than the others''.

Para 2.2:- ''The very high rate of growth in currency requirement and the consequent stepping up of the production of fresh notes, though short of the needs, has increased the volume of notes passing through the Issue Offices to the currency chests. It has also led to a rising flood of notes offered for withdrawal from circulation, as being unfit for further use. Fig..(projection of bank notes shown below) shows a total average traffic of over 12,800 million pieces during the three years 1986-1989''.

Unquote-

While giving Projection on the requirement of Bank Notes, the Expert Committee has taken into account  year wise requirement of Re 1/-, Rs 2/- and Rs 5/- separately and projected the requirement. However  in respect of Rs 10/-, Rs 20/-, Rs 50/-, Rs 100/- denominations they have shown only consolidated  requirement clubbing all denominations beginning from Rs 10 to Rs 100/- without  giving separate breakup. The reason is not known. The Committee has also not projected any requirement of  Rs 500/- or that of Rs 1000/- denominations. The Committee opined that by 2010 the Bank Note circulation could go up to 94,000 million pieces, and in case some denominational  notes are coinised in the intervening period, then the requirement  of Bank Notes would come down to  60,000 million pieces in 2010. 
Though the estimated projection of the Committee when compared to actual circulation for the period 1990 to 2000 matched to the extent of 60-65 % only, their forecast for 2010 was very close to actual. As against the projected requirement  of 60,000 million pieces of Bank Notes for circulation in 2010, the actual notes in circulation was 59542.4 million pieces (as per the RBI database), as close as 99.23 % . Their Projection is shown below:


(Ref: Graphical representation prepared based on Data from 
Annexure-3 and Annexure-4 of the Report of the Committee 
on Currency Management)

Quote :-


Para 6.2 : Note circulation of about 94,000 million pieces is entirely possible in the year 2010. If the Rs 10 denomination is coinised, in the meantime, as is likely, the circulation could be curbed and contained at 60,000 million notes. The quality of notes in circulation will not be allowed to deteriorate from the standard set in the nineties. Under these circumstances, note circulation will need the infusion of 30,000 million fresh notes in the year 2010 and will also require the withdrawal of 24,000 million pieces. In short, all the parameters of note circulation assumed for the year 2000 will be slightly more than doubled in the year 2010.
(Ref: Page 52 of 'Report of the Committee on Currency Management')
Unquote -

Based on certain statistical data, the Reserve Bank decides upon the Volume and Value of Bank Notes to be printed annually. The quantum of Bank Notes that needs to be printed annually depends broadly on the annual increase in Bank Note required for circulation, replacement of Soiled notes and Reserve requirements. The demand for Paper Money or Coinage increases or decreases on account of several factors such as growth in industrial production, high growth or slump in exports and imports, employment generation through many projects, salaries and wages paid in liquid cash, several other industrial transactions, to some extent inflation and cost of living index, extent of transactions by cards, ATMs requiring more cash for dispensation etc, etc . All these factors form part of RBI's plan of action while working out the annual Currency requirements. Therefore one should not hastily conclude that the Paper Money in circulation is maintained at the same level from the day the issuance of Paper money commenced.
..............continued :5

Friday, November 29, 2013

An analysis on Printing and circulation of Paper Money - 3

Circulation of Paper Money via-a-vise
 Quantum of Paper Money  
printed and processed
-Analysis-

( Written by : N. R. Jayaraman)
 
- 3
Rs 50/-denomination



In the graphs shown above** (1) show the total Volume and Value of notes
printed and issued in a span of 43  years i.e from 1970 to 2013. The
second graph (volume in million pieces) shows the same
trend of issue/ circulation every 10 years

Total quantum of Rs 50/- denomination Bank Notes issued/circulated in 43 years (1970-2013) have been 135875 million pieces. If we keep the first 10 years issue figures as base, then the position of issue/circulation works out as below:

(i) Increase in the issue/circulation by 11 times in the next 10 years i.e 1981-1992

(ii) During 1992-2003 increase in issue/ circulation by nearly 4 times compared to 1981-92 issues

(iii) Marginal decrease in issue/ circulation in the next ten years i.e 2003-2013 to the extent of 31 % compared to previous ten years.

Though the printing and fresh issue of this denomination was higher in the period 1992-2003, the reason for sudden decrease in share of this denominational issue in 2003-2013 is unclear. It could be due to higher percent of circulation in  Rs 100/- deno and Rs 500/- denominations during the said period.

Bank notes to the extent of only 3461^^ million pieces (8.51 billion) of Rs 50/- denomination are in circulation in the year 2012-2013 which works out to 2.54 % of the total notes issued in 43 years (^^Ref:- Database on Indian Economy/ RBI Data Warehouse: Table 159 : Notes and Coins Issued).

Rs 100/-denomination



In the graphs shown above** (1) show the total Volume and Value of notes
printed and issued in a span of 43  years i.e from 1970 to 2013. The
second graph (volume in million pieces) shows the same
trend of issue/ circulation every 10 years

As for Rs 100 /- denomination whose printing has also been discontinued from the year 2005, the total quantum issued/circulated in 43 years (1970-2013) have been 240122.27 million pieces of notes. If we keep the first 10 years issue figures as base, then the position of issue/circulation works out as below:

(i) Increase in the issue/circulation by nearly five times in the next 10 years i.e 1981-1992.

(ii) During 1992-2003 the issue/ circulation of this denomination further increased by nearly 4 times compared to 1981-92 issues.

(iii) Increase in the next ten years i.e 2003-2013 by 1.66 times compared to previous ten years.

Bank notes to the extent of only 14421^^million pieces of Rs 100/- denomination are in circulation in 2012-2013 which works out to 6 % of the total notes issued in 43 years (^^Ref:- Database on Indian Economy/ RBI Data Warehouse: Table 159 : Notes and Coins Issued).

Rs 500/-denomination




In the graphs shown above** (1) show the total Volume and Value of notes
printed and issued in a span of 43  years i.e from 1970 to 2013. The
second graph (volume in million pieces) shows the same
trend of issue/ circulation every 10 years

As for Rs 500 /- denomination whose printing has also been discontinued and re introduced at intervals, the total pieces issued in 43 years (1970-2013) works out to 70852 million pieces of notes. If we keep the first 10 years (1981-1992) issue figures as base, then the position of issue/circulation works out as below as this denomination has not been issued till 1987- 1988:

(i) It was nil  during 1970 to 1981 .

(ii) The issue/ circulation began during 1981-1992.
(iii) During 1992-2003 the issue/ circulation of this denomination has  increased by nearly 74 times compared to 1981-92 issues
(iv) During 2003-2013 the raise in circulation is almost seven times compared to  1992-2003 period.

Bank notes to the extent of only 10719^^million pieces of Rs 500/- denomination are in circulation in 2012-2013 which works out to 15 % of the total notes issued in 26 years. (^^Ref:- Database on Indian Economy/ RBI Data Warehouse: Table 159 : Notes and Coins Issued).

Rs 1000/-denomination


In the graphs shown above** (1) show the total Volume and Value of notes
printed and issued in a span of 43  years i.e from 1970 to 2013. The
second graph (volume in million pieces) shows the same
trend of issue/ circulation every 10 years

As for Rs 1000 /- denomination the total pieces issued in 43 years (1970-2013) have been 19052 million pieces of notes. If we keep the first 20 years (1970-1992) issue figures as base, then the position of issue/circulation works out as below:

(i) It was just total 4.42 million pieces during 1970 to 1992,  and therefore  it   can not be taken as yardstick to correctly compare with succeeding year circulation  .

(ii) In view of the above if we keep the base year for calculation as 1992-2003 the raise in circulation is  almost 70 times  times in the next 10 years i.e 2003-2013.

Now in 2012-2013 Currencies of this denomination remains in circulation to the extent of only 4299^^million pieces works out to mere 22.56 % of the total notes issued/circulated in 21 years (^^Ref:- Database on Indian Economy/ RBI Data Warehouse: Table 159 : Notes and Coins Issued).

Rs 1000 , Rs 5000/- and Rs 10000/-  in circulation prior to independence in limited quantity. In the year 1946 Rs 1000/- and Rs 10000/- denominations were demonized to curb unaccounted money.  Again all the  three denominations  i.e Rs 1000/-, Rs 5000/- and Rs 10000/-  were reintroduced  in the year 1954 put in circulation but again they were demonetized twice in the year  1978. (Ref: Frequently asked questions under Chapter Currency: http://www.rbi.org.in/scripts/FAQ).

In the said three higher denominational Bank Notes,  Rs 1000/- deno was re-introduced in the year 2000.  Prior to issue of Rs 1000/- , a newer denomination in the value of Rs 500/- was introduced in the year 1987-88. Therefore the data has been compiled only from 1970 onwards by not taking into consideration the demonetized issues of Rs 1000/- denomination which was very limited in circulation prior to 1970.

 ------------------------
{** Courtesy :- The Graphic representations shown for Rs 50/-, 100/-, 500/-, to Rs 1000/- denominations have been prepared on the basis of the Data taken from RBI site:- ''Database on Indian Economy/ RBI Data Warehouse: Table 159 : Notes and Coins Issued'' )
----------------------------
to be continued........3

Thursday, November 28, 2013

An analysis on Printing and circulation of Paper Money - 2

Circulation of Paper Money via-a-vise
 Quantum of Paper Money  
printed and processed
-Analysis-
( Written by : N. R. Jayaraman) 

 
-2-
Now that the basis of issuance of Money is understood with the Illustrative Model, let us see the actual position of circulated and issued Bank Notes. In the year 1935 the total value of Bank notes in circulation ( it was called currencies then) was 172 crores i. e 1.72 billion equivalent to 124 million pieces of notes. In the year 2001 the value of currencies in circulation rose up to 2182.05 billion rupees equivalent to 38000 million pieces of notes (Ref: RBI's annual report 2000-01, Para 12.1 -Currency Management). Again in the year 2011 the circulation went up to 64000 million pieces (Ref : Modeling Currency Demand in India: An Empirical Study, Introduction, Para -6). That means every year the circulation of Currencies have been going up and there is no uniformity in the swing towards any particular denominations. The denominational requirements also fluctuate ''Empirical Studies on Currencies''   observed the following:

Quote:

''The long term annual growth rate of currency circulation has in fact gone up from around 12 per cent during 1971-81 to 14 per cent during 1981-91 and nearly 15 per cent in the last decade. In a vast country like India with its wide geographical spread, predominance of cash as a mode of payment and a high degree of regional variation in income, expenditure and spending patterns, management of currency is undoubtedly a challenging task.'' (Ref :- Introduction, Para 6 in Modeling Currency Demand in India: An Empirical Study) 

Unquote-

In India, people have marked preference over handling of cash instead of credit or debit cards. This is one of the reasons why the Currencies or Bank note circulation is very much on the higher side in India compared to other countries. Generally though it is officially believed that the life span of a note is six months to one year or so, it is practically not withdrawn within the period due to ever increasing demand of cash amongst the lower and middle income group of people who continue to use and keep them in circulation without returning to them to the banks for exchange, which otherwise would not have been reissued by the banks beyond certain point. 

When we study the requirement (Indent) pattern of RBI together with the supplies and notes in circulation, it gives an impression that on an average reserve stock of 15- 16 % of the notes in circulation are produced every year which includes notes for replacement against soiled notes and fresh inflow of notes to take care of inflation or higher GDP (Gross Domestic Product index). However the fact is otherwise. Annually  Reserve Bank puts up Indent for printing nearly 30 % of the total Bank Notes in circulation in various denominations.

The total value of bank notes in circulation at the end of March 2013 was 11648** billion rupees (Rs 11648000000000/-) equivalent to 73522 million pieces of notes in various denominations. It was 8044.45 million pieces of notes during 1970-71.  At mid point periods ie in the first decade 1987-88 when Rs 500/- denominations were introduced the circulation was 13478.2 million pieces including higher denomination like Rs 500/- and during 2000-2001 when Rs 1000/- denomination was also introduced, the circulation went up to 35702.8 million notes of different denominations. 

(Ref: Chart based on data from Database on Indian Economy/ RBI Data Warehouse/ Notes and Coins issued /Currency and Coinage /Table 159 )

Prior to independence, denominations like Rs 1000/-, Rs 5000/- and Rs 10000/- were also in circulation. But in the year 1946 two denominations i.e Rs 1000/- and Rs 10000/- were demonized to curb unaccounted money. After few years the same three sets of denominations were re issued in 1954, and once again demonetized in the year 1978. All those denominations were issued in a limited quantity. (Ref: Frequently asked questions under Chapter Currency: http://www.rbi.org.in/scripts/FAQ).

Subsequently out of the three denominations demonetized, only Rs 1000/- deno was re-introduced in the year 2000. Prior to issue of Rs 1000/- , a newer denomination in the value of Rs 500/- was introduced in the year 1987-88. Therefore the data has been compiled only from 1974 onwards by not taking into consideration the demonetized issues of Rs 1000/-, Rs 5000/- and Rs 10000/- denominations which were very limited in circulation.

Against this background let first analyze the issue and circulation of Bank notes in various denominations to understand the quantum of money that were issued both in value as well as in volume. The graph for the period from 1974 to 2013 has been split into two parts, one to show the overall volume and value and the other to show the variation in the quantum issued / circulated every one decade (10 years).


Rs 1/-denomination 



In the graphs shown above** (1) show the total Volume and Value of notes
printed and issued in a span of 43 years i.e from 1970 to 2013. The
second graph (volume in million pieces) shows the same
trend of issue/ circulation every 10 years
 

Total quantum of Rs 1/- denomination Bank Notes issued/circulated in 43 years (1970-2013) have been 116980 million pieces. If we keep the first 10 years issue figures as base, then the position of issue/circulation works out as below:

(i) Marginal decrease in the issue/circulation by 2 %  in the next 10 years i.e 1981-1992.

(ii) During 1992-2003 increase in issue/ circulation by approximately 14.4 % compared to 1981-92.

(iii) Marginal decrease in  issue/ circulation in the next ten years i.e 2003-2013 to the extent of 5 % compared to previous ten years.

This denomination has been totally Coined. Though the printing and fresh issue of this denomination has been discontinued, whatever quantum is in circulation is still considered to be legal tender. It is presumed that the soiled currency in circulation is being slowly withdrawn and not reissued again. Since RBI realized that though volume-wise, the share of this denomination in the total banknotes in circulation was very high, in terms of value they constituted a very small percentage, cost of printing of this deno was high and re issues not commensurate with their life, further printing and fresh issues of these banknotes has been discontinued.

Bank notes to the extent of only 2990^^ million pieces (2.99 billion rupees) of Rs 1/- denomination are in circulation in the year 2012-2013 which works out to 2.55 % of the total notes issued in 43 years. (^^Ref:- Database on Indian Economy/ RBI Data Warehouse: Table 159 : Notes and Coins Issued)

 
Rs 2/-denomination 



In the graphs shown above** (1) show the total Volume and Value of notes
printed and issued in a span of 43 years i.e from 1970 to 2013. The
second graph (volume in million pieces) shows the same
trend of issue/ circulation every 10 years

Total quantum of Rs 2/- denomination Bank Notes issued/circulated in 43 years (1970-2013) have been 108245 million pieces. If we keep the first 10 years issue figures as base, then the position of issue/circulation works out as below:

(i) Increase in the issue/circulation by 3.5 times in the next 10 years i.e 1981-1992.

(ii) During 1992-2003 decrease in issue/ circulation by 15 % compared to 1981-92 issues may be due to issue of Coins in place of Bank notes of this denomination.

(iii) Marginal increase issue/ circulation in the next ten years i.e 2003-2013 to the extent of 3 % compared to previous ten years.

Though the printing and fresh issue of this denomination has been discontinued, whatever quantum is in circulation is still considered to be legal tender. It is presumed that the soiled currency in circulation is being slowly withdrawn and not reissued again. Since RBI realized that though volume-wise, the share of this denomination in the total banknotes in circulation was very high, in terms of value they constituted a very small percentage, cost of printing of this deno was high and re issues not commensurate with their life, further printing and fresh issues of these banknotes has been discontinued.

Bank notes to the extent of only 4255^^ million pieces (8.51 billion rupees) of Rs 2/- denomination are in circulation in the year 2012-2013 which works out to 3.93 % of the total notes issued in 43 years (^^Ref:- Database on Indian Economy/ RBI Data Warehouse: Table 159 : Notes and Coins Issued).


Rs 5/-denomination



In the graphs shown above** (1) show the total Volume and Value of notes
printed and issued in a span of 43 years i.e from 1970 to 2013. The
second graph (volume in million pieces) shows the same
trend of issue/ circulation every 10 years

As for Rs 5 /- denomination whose printing has also been discontinued from the year 2005, the total quantum issued/circulated in 43 years (1970-2013) have been 124760 million pieces of notes. If we keep the first 10 years issue figures as base, then the position of issue/circulation works out as below:

(i) Increase in the issue/circulation by nearly 2.9  times in the next 10 years i.e 1981-1992.

(ii) During 1992-2003 the issue/ circulation of this denomination increased by 13.5 % compared to 1984-94 issues.

(iii)  Increase in the next ten years i.e 2003-2013 by 52 % compared to previous ten years.

Though the printing and fresh issue of this denomination though has been discontinued, it was re-introduced in 2001 for a short period to tide over the crisis of demand and supply of coins and issue once again discontinued from the year 2005. Whatever quantum is in circulation is still considered to be legal tender. It is presumed that the soiled currency in circulation is being slowly withdrawn and not issued again.

Bank notes to the extent of only 7374^^ million pieces (36.87 Billion rupees) of  Rs 5/- denomination are in circulation in 2012-2013 which works out to nearly 6 % of the total notes issued in 43 years (^^Ref:- Database on Indian Economy/ RBI Data Warehouse: Table 159 : Notes and Coins Issued).

Rs 10/-denomination


In the graphs shown above** (1) show the total Volume and Value of notes
printed and issued in a span of 43 years i.e from 1970 to 2013. The
second graph (volume in million pieces) shows the same
trend of issue/ circulation every 10 years

As for Rs 10 /- denomination whose printing has also been discontinued and re introduced at intervals, the total pieces issued in 43 years (1970-2013) works out to 298407 million pieces of notes. If we keep the first 10 years issue figures as base, then the position of issue/circulation works out as below:

(i) Increase in the issue/circulation by nearly 1.5 times in the next 10 years i.e 1981-1992.

(ii) During 1992-2003 increase in issue/ circulation by 3.5 times compared to 1981-92 issues.

(iii) Increase in the next ten years i.e 2003-2013 by 26 % compared to previous ten years.

The printing and fresh issue of this denomination continues to be suspended and reprinted at long intervals to meet the shortages of bank notes in circulation. It is presumed that the soiled currency in circulation is being slowly withdrawn and not issued again.

Bank notes to the extent of only 25168^^million pieces ( 251.68 Billion rupees )of Rs 10/- denomination are in circulation in 2012-2013 which works out to 8.4 % of the total notes issued in 43 years. (^^Ref:- Database on Indian Economy/ RBI Data Warehouse: Table 159 : Notes and Coins Issued).

In view of ever increasing demand for the Bank Notes RBI has decided to introduce one Billion Polymer Notes in Rs 10/- deno in this year following their successful usage in Australia and Singapore to safeguard against counterfeiting of currency and to enforce clean note policy. Besides Australia and Singapore the other countries that use the Polymer notes are New Zealand, Papua New Guinea, Romania, Bermuda, Brunei and Vietnam etc. The Polymer notes are expected to have five times longer life than Paper currencies and enhanced safeguard against counterfeiting of currency. Read the following from RBI that explains the plan of action on the anvil:

-Quote:

''To increase the circulation life of banknotes, particularly in small denominations, the Reserve Bank, in consultation with Government of India, considered various options, including printing banknotes on plastic substrate. Accordingly, it has decided to introduce one billion pieces of 10 banknotes on plastic substrate for field trials in five cities, viz., Jaipur, Bhubaneswar, Kochi, Shimla and Mysore, which have been identified because of their geographic and climatic diversity they last longer; they create minimal dust and no fibers during printing and handling; and they can contain certain security features that are difficult and expensive to counterfeit''.

The Reserve Bank engaged the services of The Energy and Resources Institute (TERI) to conduct a study on the carbon footprint of cotton-based banknote paper substrate vi-à-vis plastic-based substrate and to estimate their overall environmental impact, taking into account their complete life cycles.

The Life Cycle Impact Assessment results for the two types of notes indicate that replacing cotton-based notes with plastic-based notes would have significant environmental benefits. Polymer/plastic banknotes (and the waste from production) can be granulated and recycled into useful plastic products such as compost bins, plumbing fittings and other household and industrial products. The base material of polymer is a non-renewable resource, but due to its recyclability, it has more than one life''. (Ref:- RBI Annual Report 2011-13 )

- Unquote

Rs 20/-denomination


In the graphs shown above** (1) show the total Volume and Value of notes
printed and issued in a span of 43 years i.e from 1970 to 2013. The
second graph (volume in million pieces) shows the same
trend of issue/ circulation every 10 years

As for Rs 20 /- denomination the total pieces issued in 43 years (1970-2013) have been 47198.5 million pieces of notes. If we keep the first 10 years issue figures as base, then the position of issue/circulation works out as below:

(i) Increase in the issue/circulation by nearly 4.2 times in the next 10 years i.e 1981-1992.

(ii) During 1992-2003 the issue/circulation decreased by 33 % times compared to 1981-92 issues.

(iii) In the next 10 years i.e 2003-2013, the issue/circulation saw steep increase in issue/ circulation by 300%.

Now in 2012-2013 Currencies of this denomination remains in circulation to the extent of only 3825^^million pieces works out to mere 8.1 % of the total notes issued/circulated in 43 years (^^Ref:- Database on Indian Economy/ RBI Data Warehouse: Table 159 : Notes and Coins Issued).
 ------------------------
{** Courtesy :- The Graphic representations shown for Rs 2/-, 5/-, 10/-, to Rs 20/- denominations have been prepared on the basis of the Data taken from RBI site:- ''Database on Indian Economy/ RBI Data Warehouse: Table 159 : Notes and Coins Issued'' )
----------------------------
to be continued........3

Sunday, November 17, 2013

An analysis on Printing and circulation of Paper Money -1

 Circulation of Paper Money via-a-vise
 Quantum of Paper Money  
printed and processed
-Analysis-
( Written by : N. R. Jayaraman) 

 
- 1- 
Between 1861 and 1935, the Government of India under British rule managed the issue of Paper currency under the provisions of Paper Currency Act 1861 till RBI was handed over the said responsibility from the year 1935. In the year 1926, during the British rule, Royal Commission on Indian Currency and Finance – also known as the Hilton-Young Commission – recommended the creation of a central bank for India to independently control the issue and circulation of Currency. Thus the Reserve Bank of India Act, 1934 enacted by the Govt, paved the way for establishing the Reserve Bank which began its Currency Management operations in the year 1935.

Deriving necessary statutory powers from Section 22 of the RBI Act 1934 , RBI began its operation of issue and Circulation of Paper Money called Currency or Bank Notes which became one of its core banking functions. Since then Reserve Bank has been responsible for the design, production and overall management of the issue and circulation of Bank Notes in consultation with Government of India, all of the Bank Notes embedded with several security features .

Though under the RBI act 1934, the Reserve Bank is authorised to issue Bank notes in different denominational values, the act did not permit issue of denominational values beyond ten thousand rupee Bank Notes. Presently the Bank Notes are issued in the denomination of Rs.5/-, Rs.10/-, Rs.20/-, Rs.50/-, Rs.100/-, Rs.500/- and Rs.1,000/- only. Paper Currencies in denominations like Re.1/- and Rs.2/-, Rs 50,000/- and Rs 10,000/- which were in circulation at certain periods of years have since been discontinued totally, in different periods, for different reasons which will be discussed later. Bank Notes valued Re.1/- and Rs.2/-have been coinised. Though Rs 5/- denominational Bank Notes are not in continuous printing program, it is printed at some short intervals and discontinued. However as per RBI notification Bank notes in those two denominations issued earlier are still valid and are in circulation to the extent they are available. Read RBI version on the issues.

Quote:-

Volume-wise, the share of such small denomination banknotes in the total banknotes in circulation was very high but in terms of value they constituted a very small percentage. The average life of these banknotes was found to be less than a year. The cost of printing and servicing these banknotes was, thus, not commensurate with their life, and printing of these banknotes was, therefore, discontinued. These denominations were coinised. However, Rs.5 was re-introduced in 2001 to supplement the gap between the demand and supply of coins in this denomination. The printing of Rs.5/- banknotes has been discontinued from the year 2005.       (Ref: Currency Matters/ Frequently asked Questions)

Unquote-


To facilitate the distribution of notes and rupee coins across the country, the Reserve Bank has authorised select branches of banks to establish currency chests through which the Bank Notes are issued for circulation. At present it is understood that there is a network of 4,281 Currency Chests to hold and distribute Bank Notes .

Till few years back, the Bank Notes were printed in three presses, two in Nasik and the other at Dewas, all of which functioned under Department of Economic Affairs, Ministry of Finance, Govt of India. Later Bharatiya Reserve Bank Note Mudran Pvt. Ltd. (BRBNMPL), a wholly owned subsidiary of the Reserve Bank, also set up printing presses at Mysore in Karnataka and Salboni in West Bengal. They too carried out the same operation. Now the Mints and Security presses working under the Ministry of Finance have been amalgamated under one unit called Security Printing and Minting Corporation of India Limited (SPMCIL).

In view of several Security Presses and Mints established by RBI, some wonder why so many presses are established and why so much paper money printed and circulated across the Nation? Also people want to know the basis on which the Currencies are issued? In spite of so much paper money being printed only soiled and old notes are found to be more in circulation and hardly one can see new notes in the potential market or as dispensed by the ATM machines.

Most of the said security presses also work overtime in two or three shifts to meet the annual requirements raised by RBI. Reserve Bank estimates the annual quantity of notes (denomination-wise) required and place Indents (requirement) for printing them with the above mentioned presses from where the supplies are made. It will be difficult to answer in brief the extent of demand for Currencies and Coins as several issues are involved in the demand and supply of Coins and Currencies and the quantum of demands varies from year to year. It is suffice if one understand the fundamental principle under which the Paper Money or Coinage issuance takes place. This article however will confine to only Paper money called Bank Notes issues and not dwell upon the subject on issuance of Coins.

Every Nation has their own Currencies or Bank Note issuing authorities who also play certain role in shaping up the financial policies of the Govt as they indirectly form one principle factor for the issuance of Paper money. Just pumping the printed Paper money in to circulation to meet financial constraints will only raise inflation destroying the economic fabric of the country. Paper money cannot be released just like tokens. While some form of Currencies called Bank Notes and Coins will be necessary in order to carry out the day to day transactions in several spheres of life, in historical times before the emergence of Paper money, the transactions were done with precious Metals in lieu of Paper money. Thereafter with the advent of Paper money the liquid cash transactions with metals slowly vanished.

Let us try to understand various factors involved in the issuance of Paper money and Coins. As mentioned earlier Reserve Bank of India (RBI) is the Paper money issuing authority for the Nation as empowered under Section 22 of the Reserve Bank of India Act, 1934. RBI issue Bank Notes in the denomination of Rs.10, Rs.20, Rs.50, Rs.100, Rs.500 and Rs.1000. These notes are called Bank Notes as they are issued by Central banking institution like Reserve Bank of India. RBI estimates the total annual demand taking into consideration several factors including growth rate of the economy, the replacement demand for the soiled notes and reserve requirements etc through well researched and compiled statistical data available with them which is updated almost every day. ( as the mass requirement of paper money cannot be produced and released overnight, it is necessary to print and stock the Paper money to meet emergency exigencies). This aspect will be discussed in the succeeding chapters.

The notes issued for circulation are either in the hands of public or are kept stored in the vaults of several banks from the day the issues were regulated through well organized mechanism. However remember that the total value of Paper money and Coins in circulation and in stock will be within the total value of the reserves maintained in several forms on par with the Internationally accepted norms by the issuing Nation and the issuing authorities and they will be in terms of Gold, Foreign currencies, valid Bonds etc held against bankruptcy.

The Paper money is technically a Promissory note or a registered and accounted piece of paper and expected to be not easily duplicated by anyone due to several security features embedded in them. Through this Promissory note initially the issuing authority promised the holder of the note that the equivalent value of Gold will be given as and when required. However since the prices of Gold fluctuated this clause has probably been taken away and instead the bearer of the Paper Money are assured of payment of equivalent value in sum as indicated on the Promissory note whenever they are demanded. Therefore as per the internationally accepted norms the authorities who issue money have full backing of Gold or precious metal or some form of securities against the value of the total quantum of Bank Notes or Currencies issued. This is therefore basically Gold parity or the Gold Reserve System.

Let us briefly understand the issue pattern of Coins and Currencies by the Illustrative Model reproduced below. THE FIGURES GIVEN ARE ILLUSTRATIVE ONLY AND NOT ACTUAL. Let us assume that the issuing authorities hold 5000 tons of gold and Silver in their chest, will they then issue Currencies and Coins equivalent to their value? It is presumed to be so. When the Paper money was introduced, 'x' quantum of Currencies or Paper money would have been issued based on the reserves held - in terms of Gold, foreign currencies, valid bonds etc.

Let us work out the total value of 1000 ton of Gold based on the average rate which works out in Indian rupee ( per 10 gm the price is approx 30,740/-) as Rs 3,074,000,000,000/- in the illustrative example to explain the logic. How much Currency would be issued and put into circulation based on the daily usage of various denominations? The 'X' Quantum could have been the following (When the issuance of Paper money commenced there were several deno note in circulation which s included 10,000/-, 5000/-, 1000/, 500/- and lowest deno like 1/-, 2/- and 5/- some of which are no more printed now). This model illustrative example has been done with present set of denominations in circulation to easily understand the principle involved:-


While the printing and issue of the Currencies were linked to the Gold reserve of a country, neither the basis on which the Paper Money was issued by the then private banks prior to their amalgamation with RBI nor the modus operandi of the transaction or to the extent to which the Paper Money were issued remain sketchy and unknown till 1974 from which the data is available. One aspect is clear to the extent that the issuing authorities, whichever nation they represent and whoever issue Paper money will have control over the yellow metal or other precious metal stocks to offer safety against the Paper money being circulated. However prior to take over by RBI the then existed Banks issued their own Paper Money based on mutual trust and good will of the trading community.

Why Yellow metal only and why not other precious metals like Silver ? May be not necessary that only Gold reserve be kept against the value of Currencies in circulation under issue as there are internationally accepted norms such as reserve foreign exchange, internationally acceptable security bonds , Silver etc also form part of it. It is understood that even internationally accepted foreign exchange in Currencies can be held in addition to the precious metals. In short it is sufficient if we understand that all such measures are for the purpose of safeguarding or honoring the promised value of the issued Paper money against bankruptcy.
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