Rupee

Indian currency is called Rupee and it derives its name from ‘rupiya’ which were the silver coins, issued by Sultan Sher Shah Suri in the 16th century. Rupee is available in paper currency and in coins. The rupee is subdivided into 100 paise. The current highest denominated Indian currency is Rs.2000/- and the minimum available coin in active circulation is 50 paise (half rupee).

Since 2010, Rupee is denoted symbolically as ₹ . The international code for Indian rupee is INR.

Who prints Indian Currency

Reserve Bank of India is the sole authority to issue currency notes in India. The notes and coins are guaranteed by the RBI Governor. RBI derives this authority from the Reserve Bank of India Act 1934. But the Government of India has the authority to decide which denominations are to be printed, security features and even the design of the bank notes.

The currency notes are printed at Reserve Bank of India currency printing facilities at Nashik, Dewas, Salboni and Mysore.

Indian Rupee design

The first currency note printed by Independent India was a 1 rupee note. The currency had the image of ‘Lion Capital of Ashoka’ at Sarnath, Uttar Pradesh.

High denomination notes (Rs.1000, Rs.5000 and Rs10,000) were introduced in 1954.

Pic source: www.rbi.org.in

In 1978 high denomination notes were demonetised. In the1980’s the image on the notes were based on themes like science and technology, progress etc.

In 1996 RBI introduced the image of Mahatma Gandhi on currency notes, which came to be known as the ‘Mahatma Gandhi Series’. In reality the picture used is not a caricature but a cropped real image, which is taken in 1947(as given below)

Pic source: www.betterindia.com

Security features of Indian Rupee

Water mark, security thread, intaglio printing and optically variable ink are some of the major security features in Indian currency notes.

Basis for printing Indian Rupee

In India currency notes were issued based on ‘Proportional Reserve System’ from 1927 to 1956. In this system the notes issued were in proportion to a percentage of gold reserves and government securities.

In 1956 India adopted ‘Minimum Reserve System’ for the issue of currency notes. In this system Reserve Bank of India is required to maintain a minimum reserve of Rs.200 crore. Out of this Rs.115 crore need to be in Gold reserve and balance Rs.85 crores in foreign exchange reserve.

Merits and demerits of ‘Minimum Reserve System’

The currency issuing authority can issue as much as currency as it may consider necessary for the economy, provided minimum reserve is maintained. Basically, that means there is no upper limit for the issue of currency in minimum reserve system.

One of the main merits of minimum reserve system is that it is very much in favour of developing countries. If managed responsibly in line with the needs of the economy, it can provide with sufficient resources for development schemes, without the need for additional resources in terms of gold reserve or foreign reserve.

The demerits of the system is that it’s not backed by equivalent gold or any other form of reserve. An inefficient supply management of money can lead to inflationary pressures and can spell havoc on the economy.

At the same time RBI follows some principles for issuing new currency which is based the on economic growth of the country. Higher the economic growth, higher can be the expansion of new currency. This needs to be very much in line with the strategy to contain inflation in country. To manage the money supply and rupee value, RBI buys foreign currencies and bonds.

The total currency in circulation in India as on June 1st, 2018 is Rs.19.3 lakh crore.

“I promise to pay the bearer the sum of rupees…’”what does it mean?

The promissory clause printed on the bank notes i.e., “I promise to pay the bearer the sum of rupees…” ,provides the obligation on the part of RBI, to exchange a bank note with, equivalent value of bank notes of lower value or coins which are legal tender under Indian Coinage Act 2011.

When gold standard was followed the bearer of currency note could approach the issuing authority and receive gold of equivalent value.

How the value of Indian currency decided

Indian Rupee follows a floating exchange rate system where the exchange rate of rupee with another currency is determined by market forces of demand and supply. Apart from demand and supply the major factors determining the exchange rate of currency are Inflation, Interest rate, current account deficit, public debt and stability of economic growth.

The future

Indian economy since 1947 has come a long way and is poised to grow at healthy growth rates in the coming years. We have embraced globalisation and opened our market for free trade with the rest of the world.

Technological advancement especially in the field of cashless economy and crypto currencies hold the key to the future prospect for ‘Rupee’.

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