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Special Notes
Reserve Bank’s Clean
Note Policy: An Overview
R. K. Jain*
Reserve Bank is charged with the responsibility of providing
adequate supply of currency for facilitating transactions of the Government,
banks and the public. Over the years, with the expansion of the economic activities
and growth, the volume of currency in circulation has multiplied by many times.
Of late, it was observed that many of the notes in circulation were soiled and
mutilated and these were no longer considered as a decent medium of exchange.
Such notes were also not found conducive for introducing new technology such
as dispensing machines, counting machines, automatic teller machines (ATM),
etc. to improve customer service. To overcome this problem, the Reserve
Bank took a number of initiatives to increase the supply of clean notes on the
one hand and suck out the soiled and mutilated notes from the circulation on
the other, known as ‘Clean Note Policy’. This note attempts to analyse how far
these measures have been effective in improving the then prevailing situation
and providing a new direction to the currency management.
JEL Classification: E58
Key words: Central Banks and Their Policies
Introduction
The Reserve Bank of India is the sole authority for the issue
of currency in India. Although one-rupee notes/coins and subsidiary coins, the
magnitude of which is relatively small, are issued by the Government of India,
these are put into circulation only through the Reserve Bank. This authority
is given to the Reserve Bank because it is charged with the responsibility of
providing adequate supply of currency for facilitating transactions of the Government
and the exchange and remittance requirements of banks and the public. With the
expansion of the economic activities and growth, the volume of currency in circulation
has multiplied by more than 200 times during last 50 years. Of late, it was
observed that many of the notes in circulation were soiled and mutilated and
these were no more
* R. K. Jain is Director in the Department of Economic Analysis
and Policy of the Bank. He is highly grateful to Shri Vepa Kamesam and Dr. Rakesh
Mohan, Deputy Governors and Dr. Narendra Jadhav, Principal Adviser, Shri A.
L. Verma, former Officer-in-Charge and Dr. T. K. Chakrabarty, Adviser of the
Department of Economic Analysis and Policy for their guidance and encouragement
in preparing this paper. However, the views expressed in this paper are of the
author’s own and he alone is responsible for errors, if any.
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considered as a decent medium of exchange. No body wanted to
accept these notes, however, if somebody acquired these notes while transacting,
they wanted to get rid of them at the first available opportunity. With the
result, these soiled and mutilated notes were effectively driving out the good
notes out of circulation, as if the Gresham’s Law was in operation. These were
also not at all conducive for use of new technology such as dispensing machines,
counting machines, automatic teller machines (ATM), etc. for improving
banks’ efficiency and customer service. To overcome this problem, the Reserve
Bank of India took a number of initiatives to increase the supply of clean notes
on the one hand and suck out the soiled and mutilated notes from the circulation
on the other, known as ‘Clean Note Policy’. This note attempts to analyse how
far these measures have been effective in improving the then prevailing situation
and providing a new direction to the currency management.
The note has been organised into three sections. Section I
explains the main features of currency management in India in a historical perspective,
while Section II focuses on various measures taken under ‘Clean Note Policy’
and their impact on currency management. Section III contains the concluding
observations.
Section I
Currency Management in India
Up to March 31, 1935, the regulation of currency was carried
out by the Central Government departmentally through the Controller of Currency
under the Paper Currency Act (XIX of 1861). On its establishment, the Reserve
Bank took over the management of currency in India under Section 3 of the Reserve
Bank of India Act, 1934 (RBI, 1970). Accordingly, the liability of the Government
of India notes in circulation on that date and assets equal to that amount of
liability were transferred to the Issue Department of the Bank. Under Section
22 of the Act, the Bank has the sole right to issue currency notes (referred
to as ‘bank notes’ in the Act in order to distinguish them from the notes issued
by the Government) in India. Currency notes are legal tender at any place in
India in payment or on account, without limit (RBI, 1983).
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In India, currency forms a significant part of the money supply,
even though its importance has been declining over the years due to the increasing
monetisation of the economy and the spread of banking facilities. Currency is
an important economic indicator of economic activity, especially in rural India
and its behavioural pattern throws up many interesting insights. Cash demand
tends to increase in the beginning of the month when salaries are spent and
tapers off at the end of the month when consumers spending returns to business
accounts. Similarly, currency seasonality, by and large, mirrors the seasonality
in economic activity. The variance of the ratio of currency to gross domestic
product (GDP) at current market prices, an indicator of the role of currency
in economic activity, has stabilised since the mid-eighties (RBI, 2001). Since
currency constitutes the base for the expansion of money supply, regulation
of currency is also an important element of monetary control.
The RBI Act permits the issue of notes in the denominations
of rupees two, five, ten, twenty, fifty, one hundred, five hundred, one thousand,
five thousand and ten thousand or such other denominations not exceeding rupees
ten thousand as the Central Government may specify, on the recommendation of
the Central Board of the Bank. At present, all denominations except rupees two,
five thousand and ten thousand are being issued. Of the various denominations,
one hundred rupee notes account for nearly 41 per cent of the total value of
currency issued, followed by five hundred rupee notes (about 28 per cent) and
fifty rupee notes (about 15 per cent). The value of lower denominations is too
little though their volume is enormous. Rupees one, two and five notes account
for just one per cent of the total value of currency issued, while they account
for about 15 per cent of the total volume. Similarly, rupees ten notes account
for only 3 per cent of the total value, while their share in total volume is
25 per cent (Kamesam, 2003). The design, form and material of the notes have
to be approved by the Central Government, after consideration of the recommendations
made by the Central Board of the Bank. The Bank takes special care in the choice
of the size, colour and design of the notes to enable the public to distinguish
the different denominations easily.
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The Central Government may deprive
currency notes of any denomination of their legal tender character or direct
the non-issue of any denomination, on recommendation of the Central Board of
the Bank. In this connection, special mention may be made of demonetisation
of high denomination notes by the Government of India on two occasions. On January
12, 1946, with the object of checking unaccounted money and tax evasion, Government
demonetised notes of rupees five hundred, one thousand and ten thousand. The
Bank reintroduced from April 1, 1954, notes of rupees one thousand and ten thousand.
Five thousand rupee notes were also introduced from that date. It was again
after a lapse of more than 30 years that high denomination notes (rupees one
thousand, five thousand and ten thousand) were demonetised on January 16, 1978,
on the ground that the availability of these notes facilitated the illicit transfer
of money for financing transactions, which were harmful to the national economy
or for illegal purposes (RBI, 1983). However, the notes of rupees five hundred
and rupees one thousand have since been reintroduced.
The volume of note issue (excluding one rupee coin)
grew from Rs. 186 crore in 1938 to Rs. 1,114 crore in 1952 and further to Rs.
2,75,096 crore at end-March 2003 (RBI, 1970, 1983 and 2003). Thus, the volume
of note issue multiplied by over 200 times during the last 50 years. While various
reasons could be attributed to explain the phenomenal growth in note issue, certain
factors stand out, namely, large expansion of the economy requiring greater use
of cash, continuing public preference for currency notes as a medium of exchange
and growth of population. All transactions relating to issue of currency notes
are separated, for accounting purposes, in the Issue Department of the Bank. The
Issue Department is liable for the aggregate value of the currency notes of the
Government of India and currency notes of the Reserve Bank in circulation from
time to time and it maintains eligible assets for equivalent value. The assets,
which form the backing for the note issue, are kept wholly distinct from those
of the Banking Department. The Issue Department will issue currency notes only
in exchange for currency notes of other denominations or against such assets,
which are statutorily acceptable
for being held as part of the reserve.
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In practice, the distinction between
the Issue Department and the Banking Department has little economic significance
since there are frequent shifts between the assets of the two departments. However,
not all the assets of the Banking Department are eligible for being held in
the Issue Department (e.g., State Government securities, small coins),
an arrangement designed to provide some check on the issue of currency. The
Issue Department is also responsible for getting its periodical requirements
of notes printed from the currency printing presses of the Government of India,
distribution of currency among the public and withdrawal of unserviceable notes
and coins from circulation.
The mechanism of putting currency
into circulation and its withdrawal from circulation (i.e., expansion
and contraction of currency, respectively) is effected through the Banking Department.
Thus, if a scheduled bank wants to withdraw Rs. one crore from its deposits
with the Reserve Bank, the transaction is handled by the Banking Department,
which gives currency in the denominations required by the bank, debiting the
bank account. For this purpose, the Banking Department holds stock of currency,
which it replenishes as and when necessary from the Issue Department against
transfer of eligible assets. Likewise, if a bank tenders cash to the Reserve
Bank for its account, the cash is received by the Banking Department. If the
holding currency in the Banking Department becomes surplus to the normal requirements
of the Department, the surplus is returned to the Issue Department in exchange
for equivalent assets. In respect of the exchange of currency notes for rupee
coins and rupee coins for notes and exchange of notes of one denomination for
another, the Issue Department deals directly with the public and not through
the Banking Department.
Reserve Bank notes have a cent
per cent cover in approved assets. There is no ceiling on the amount of notes
that can be issued by the Bank at any time. According to Section 33 of the RBI
Act, the assets of the Issue Department against which currency notes are issued
have to consist of gold coin and bullion, foreign securities, rupee coin,
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Government of India rupee securities
of any maturity and bills of exchange and promissory notes payable in India
which are eligible for purchase by the Bank. In practice, such bills and promissory
notes have not figured as assets so far due to the lack of proper bill market.
The original RBI Act prescribed
a proportional reserve system. Under this system, the Bank was required to keep
40 per cent of assets in the form of gold coin, gold bullion and foreign securities,
subject to the condition that the value of gold (coin and bullion) should not
be less than Rs. 40 crore in value. This system was a relic of the old international
gold exchange standard and it placed rigid limitations on the central bank.
In India, the rapid growth in economic activity under the impetus of the development
plans and the expansion in the monetised sector of the economy called for a
large expansion of currency. The financing of the plans also necessitated heavy
drafts on the foreign reserves held by the Bank. The Reserve Bank of India (Amendment)
Act, 1956, sought to provide for the needed flexibility in note issue, while
maintaining a specified quantity of reserves in gold and foreign securities.
Under the new system, known as minimum reserve system, the Reserve Bank is required
to ensure that in the different items of assets kept as backing, the value of
gold coin and bullion should not be less than the value of Rs. 115 crore. The
other minimum condition, which can be dispensed with during unforeseen contingencies,
is that there should be foreign securities of the minimum value of Rs. 85 crore,
so that together with gold (coin and bullion) the minimum value of these assets
is Rs. 200 crore (RBI, 1983). The new system seems to provide for gold of a
higher value, but this did not imply need for additional gold. It is because
the value of the existing gold was revised upward in accordance with the new
higher price.
The Bank has made elaborate arrangements
for the discharge of its currency functions. It has set up a full-fledged ‘Department
of Currency Management’ to streamline various functions related to currency
management. The Department addresses policy and operational issues relating
to designing of banknotes, forecasting demand for notes and coins, ensuring
smooth distribution of banknotes and coins throughout the country and retrieval
of unfit notes and uncurrent coins from circulation, ensuring the integrity
of banknotes, administering the RBI
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(Note Refund) Rules, reviewing/ rationalising the work systems/ procedures at the Issue Offices on an ongoing
basis and dissemination of information on currency related matters to the general
public. The Department makes estimates of currency for incremental needs, replacement
needs and reserve needs through statistical analysis and long-term forecasts
and accordingly allocates printing/ minting of currency notes/ coins among various
Presses/ Mints. Delivery schedules of currency notes/ coins to various Issue
Offices of the Bank are also decided in advance. The distribution of currency
to the Government, banks and the public is undertaken through offices of the
Issue Department. At present, the Bank maintains 19 offices of the Issue Department
at Ahmedabad, Bangalore, Belapur, Bhopal, Bhubaneshwar, Chandigarh, Chennai,
Guwahati, Hyderabad, Jaipur, Jammu, Kanpur, Kolkata, Lucknow, Mumbai, Nagpur,
New Delhi, Patna and Thiruvananthapuram. The currency requirements at other
centers are met through 4,422 currency chests maintained by the Bank with (i)
its agencies, namely the branches of the State Bank of India, its associates
and nationalised banks, and (ii) Government treasuries and sub-treasuries. Currency
chests are receptacles in which stocks of new and reissuable notes are stored
along with rupee coins. The balances in the chests are the property of the Reserve
Bank. Besides, 3,784 bank branches spread throughout the country have also been
authorised to establish small coin depots to stock small coins and distribute
them into other bank branches in the area of their operations (Kamesam, 2003).
The Reserve Bank’s responsibility
is not only to put currency into, or withdraw it from circulation, but also
to exchange notes and coins into such other denominations of notes and/or coins
as may be required by the public. Section 27 of the RBI Act imposes an obligation
on the Bank to maintain the quality of note issue by stipulating that the Bank
shall not reissue currency notes, which are torn, defaced or excessively spoiled.
Besides the Reserve Bank, public sector banks accept soiled notes and slightly
mutilated notes in payment of dues and afford free facilities to their customers
and other persons for exchanging such notes. The value of any lost, stolen,
imperfect or mutilated note of the Government of India or the Reserve Bank cannot
be claimed by any person as of right. However, with a view to mitigating the
hardship to the public in genuine cases, the
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Bank, as a matter of grace, arranges
to make refund of the value of such notes in accordance with the rules called
the Reserve Bank of India (Note Refund) Rules, which have been framed for this
purpose in terms of the proviso to Section 28 of the RBI Act.
The Bank, for the first time, issued
the RBI (Note Refund) Rules in 1935 based on the rules of the Paper Currency
Department as they then stood. In 1975, the Bank issued a new set of rules known
as RBI (Note Refund) Rules, 1975 in order to provide powers to examine and dispose
of the claims to be delegated to a number of officers at various levels. The
element of discretion, which was previously vested in the currency officers,
as prescribed officers entitled to adjudicate claims in respect of notes which
were not exchangeable over the counters, were abolished and replaced by precisely
formulated rules intended to test and establish the genuineness of the notes
and the claims in relation thereto. The defective and mutilated notes tendered
for adjudication were classified with reference to the degree of mutilation
and the difficulties likely to be experienced in the examination and disposal
of the claims. The mission behind the initiatives was to facilitate the expeditious
settlement of all genuine claims (RBI, 1975).
Notes and coins returned from circulation
are deposited at the issue offices of the Reserve Bank. The Bank then separates
the notes that are fit for reissue and those which are not fit for reissue.
The notes which are fit for reissue, are sent back into the circulation and
which are not fit for reissue are, after processing, shredded. The coins withdrawn
are sent for melting. The replacement of notes returning from circulation is
a continuous process and is carried out to keep the notes in circulation in
as clean a condition as possible. The pursuit of this on-going process can aptly
be described as the Bank’s Clean Note Policy.
Section II
The Bank’s Clean Note Policy
With a view to facilitating the
management and servicing of a very large and growing volume of currency notes,
the Reserve Bank took a number of steps since 1975. A new metallic rupee was
issued
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on 1st April 1975 to
supplement the availability and stocks of one-rupee notes. Subsequently, rupees
two and five notes were also coinised. The installed capacity for printing of
fresh notes and the production of bank note paper was substantially increased.
The existing currency note printing presses at Nasik and Dewas and the mints
owned by the Government of India at Hyderabad, Kolkata, Mumbai and Noida are
being modernised. Two new printing presses with the state-of-art technology
have been set up at Mysore and Salboni under the aegis of the Bharatiya Reserve
Bank Note Mudran Ltd., a wholly owned subsidiary of the Reserve Bank. To bridge
the demand-supply gap, the Government, as a one-time measure even allowed the
import of 3.6 billion pieces of notes in 1997-98. The production capacity of
the four Government Mints is being augmented. The Government of India has also
been importing rupee coins to supplement the quantity of coins supplied by the
four mints. So far, more than two billion rupee coins have been imported. Thus,
by 1999, enough printing capacity was installed to take care of the current
and foreseeable future requirements.
Simultaneously, the number of note
examination sections and staff employed for the examination of soiled and mutilated
notes were increased with a view to enabling the Bank to retire and replace
excessively soiled, defective and mutilated notes as expeditiously as possible.
In spite of these efforts, the claims in respect of soiled and mutilated notes
were rising by leaps and bounds and the quality of notes in circulation was
fast deteriorating. It was no more possible to handle these claims manually
and maintain the quality of notes in circulation at the desired level by using
the prevailing methods and techniques of currency management. Hence it was no
more a choice, but an imperative to bring the methods and techniques of currency
management in consonance with new technology and international best practices.
Accordingly, Dr. Bimal Jalan, the
then Governor, Reserve Bank of India announced the Bank’s ‘Clean Note Policy’
in January 1999. For effective execution of ‘Clean Note Policy’, withdrawing
soiled and mutilated notes from circulation is as important as pumping fresh
notes into circulation. For the achievement of the twin-goals, the Reserve Bank
has, over the past four years, introduced various changes
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in the systems and procedures related
to currency management. The steps include: mechanisation of the currency verification
and processing as also shredding and briquetting for destruction of soiled and
mutilated notes. The Bank has installed a number of Currency Verification and
Processing System (CVPS) at its various Issue Offices to supplement the manual
processing of notes.
The CVPS is an electronic-mechanical
device designed for examination, authentication, counting, sorting and on-line
destruction of the notes, which are unfit for further circulation. The system
is capable of sorting the notes on the basis of denomination, design and level
of soilage. Generally, the system sorts the notes into fit, unfit, reject and
suspect categories. The unfit notes are shredded online. The fit notes are retrieved
from the system in packets of 100 pieces. These packets are banded by the system
and information such as denomination, date of processing, name of office and
operator code is printed on the label to facilitate easy identification. The
notes in the reject and suspect categories are received in different stackers
since these have to be inspected manually for the presence of counterfeit or
different denomination notes. The CVPS ensures uniformity and consistency in
the examination of notes on the basis of soilage levels and other parameters
and classification thereof into re-issuable and non-issuable. The element of
subjectivity, which characterises manual examination of notes, is thus eliminated
through CVPS (RBI, 2002).
Each CVPS is capable of processing 50,000 –
60,000 notes per hour. It counts, examines the genuineness of notes, sorts notes
into fit and unfit and shreds the unfit notes on-line. The shreds are online
transported to a separate Shredding and Briquetting Systems (SBS) where they
are compressed into briquettes of small size. The system is environment-friendly,
as it does not create pollution that was created by burning of notes in the
past. The briquettes can be used as residual fuel in industrial furnaces. They
can even be used for land fillings or for making items for use at office and
home and paperboard. The SBS are capable of destroying notes off-line and briquette
the shreds on a stand-alone basis. They can also make briquettes
online out of shreds generated in the CVPS units. So far, 48 CVPS and 27 SBS
at all the Issue Offices have been installed (Kamesam, 2003).
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Apart from weeding out soiled and
mutilated notes from circulation, the Reserve Bank has also taken measures to
supply adequate quantities of fresh notes and to prevent excessive soilage of
the existing currency notes. As on April 1, 2003, the total annual capacity
of printing presses is 18 billion pieces as against the current requirement
of about 12 billion pieces. This capacity can be raised up to 28 billion pieces
with two shifts. Similarly, the total annual minting capacity is 4,700 million
pieces as against the current requirement of about 4,000 million pieces. Thus,
the installed capacity of the presses and mints is adequate to take care of
not only current requirements, but also of foreseeable future requirements.
Further to ensure supply of clean notes and coins among the public, mobile vans
are periodically sent at city centers and in various parts of towns. Distribution
of clean notes and coins has also been arranged through milk co-operatives in
the State of Gujarat and through Post Offices in rural areas in the State of
Maharashtra. Coin dispensing machines have been installed at public places and
bank branches. Issue of notes of lower denominations to bulk users by the Bank
is compulsorily accompanied by issue of some part in small coins.
The number of counterfeit notes
detected at the Reserve Bank’s regional offices and branches of commercial banks
has been on the rise in recent years. However, the value of forged notes detected,
as a proportion to the total value of notes in circulation has remained miniscule.
In order to mitigate the difficulties faced by the public on account of counterfeit
notes, the Bank has undertaken several measures to enhance public awareness.
A film on security features of Rs.100 and Rs.500 denomination notes was telecast
on Doordarshan and other TV channels. Banks were advised to establish ‘Forged
Note Vigilance Cells’ at their Head Offices for dissemination, monitoring and
implementation of the Reserve Bank’s instructions on forged notes. The Bank
has also initiated a number of steps to track forgery on the one hand and improve
the quality of notes on the other. The substance of bank note paper has
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been increased and a melamine resin
has been incorporated in the paper to increase its wet strength. The new Mahatma
Gandhi series of notes with special security measures have been introduced since
1996. Although the predominant reason for new security features is to make counterfeiting
difficult, they also assume importance in the context of the mechanised cash
processing activities by high-speed CVPS. The success of these systems in achieving
the authenticity and rated capacity depends greatly on the notes having machine-readable
security features. The notes in the Ashoka Pillar Series, i.e., Ashoka
Pillar in watermark window, are being phased out from circulation, as they do
not contain adequate anti-counterfeit security features as compared with the
Mahatma Gandhi series notes. These features are windowed security thread, latent
denominational image, micro printing, registration mark and raised identification
mark for identification of a denomination by the visually impaired, among others.
Moreover, portraits of human beings have been recognised as a strong security
feature on bank notes all over the world. The watermark with a human face is
a unique and an inimitable feature which provides the desired light and shade
effects. In particular, a human face brings into focus the shine/ glean in the
eyes. The portraits involve deep engravings with very minute details and are
difficult to counterfeit. The choice of the personality from the security point
of view should be such that the face should be expressive and should have lots
of lines and folds so that there is an ample scope of engravings of different
depths, which would be difficult for counterfeits. The Government and the Reserve
Bank, therefore, introduced a portrait of Mahatma Gandhi on banknotes as well
as in the watermark window (RBI, 2003). The notes on which the above features
are not available can be suspected as forged notes and detected on examination.
Thus, these features are very helpful in detecting the forged notes.
A major factor for soilage and
mutilation of notes was stapling and multi stapling of notes/ note packets.
The Reserve Bank and the Government of Inida were receiving a large number of
complaints against stapling of notes. A study conducted by the Reserve Bank
indicated that no other country followed the practice of stapling note packets.
The Government of India and the Reserve Bank, therefore,
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decided to do away with the practice
of stapling of note. The practice of non-stapling of fresh notes was initiated
in 1996 and now the fresh notes supplied by the note printing presses are totally
in unstapled condition. Moreover, non-stapling of notes facilitates proper sorting
of notes at bank branches by using table-top sorting machines, as also, mechanised
processing at the CVPS. The note packets are now secured by paper/ polythene
bands and both banks and public need to accept the change to paper/ polythene
bands and move away from staple pins. Hence, towards implementation of ‘Clean
Note Policy’, the Reserve Bank has taken into confidence the banks, the trade
and the public at large. It has made mandatory on the banks to discontinue the
practice of stapling the currency note packets. It has issued a public interest
directive to all banks under Section 35A of the Banking Regulation Act, 1949
in November 2002 instructing them:
(i) Not to staple bank notes,
(ii) To tender soiled notes to
the Reserve Bank in unstapled condition, (iii) To use bands instead of staple
pins, (iv) To issue only clean notes to members of public,
(v) To open select currency chest
branches on Sundays to provide exchange facility to members of public all over
the country, and
(vi) To provide unrestricted facility
for exchange of soiled and mutilated notes to members of public.
The Reserve Bank has also urged
members of the public not to write on the currency notes and deface them. Interestingly,
the Bank occasionally also arranges to collect soiled and mutilated notes from
the public by going to market places. As a result, the number of public complaints
in respect of soiled notes in circulation has considerably declined and availability
of fresh notes has significantly improved.
Some complaints of restrictive
practices were also being received according to which some currency chest branches
in the rural and semi-urban areas do not accept lower denomination notes. To
mitigate the position, the Reserve Bank has given specific
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monthly targets for distribution
of coins to these currency chests. The Bank monitors these targets from the
feedback reports. Further on experimental basis, the Reserve Bank had requested
banks between September and November 2002 to open one currency chest branch
on one Sunday in a month at selected centers to exclusively provide currency
exchange and distribution of small coins and suck out the soiled and mutilated
notes. The reports received from the banks show that this experiment has received
tremendous response from the public. It has, therefore, been decided that banks
should run this scheme on a permanent basis with wholehearted participation.
The choice of the center and the Sunday in the month has been left to the individual
bank to decide.
Efforts are underway to design,
develop and implement an ‘Integrated Computerised Currency Operations and Management
System’in the Reserve Bank. Computerisation will cover issue accounting, resource
planning and distribution of currency, cash department operations, note exchange
counters in Issue Department, claims section, currency chest reporting and management
information systems in the Regional and Central Offices. The development of
the application software is being outsourced. Furthermore, the Reserve Bank
has envisaged the establishment of a Monetary Museum in Mumbai with display
and archival facilities, which would house contemporary and ancient monetary
artifacts and coins capturing the history of currency in India. The website
for the proposed Monetary Museum has now been made a part of the Reserve Bank
website (RBI, 2003).
For the success of the ‘Clean Note
Policy’, high degree of coordination is necessary between chest branches and
non-chest branches and the currency chest branches should mechanise their operations
by installing smaller desk top versions in addition to banding machines so that
members of public receive good staple free notes and the Reserve Bank receives
staple free soiled notes ready for processing and destruction. The Regional
Directors of the Reserve Bank could also be contacted for proper coordination
of remittances of notes and coins. It is hoped that banks will extend
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full co-operation to the Reserve
Bank in delivery of its Clean Note Policy and it may not have to think of any
regulatory intervention for this purpose.
Section III
Conclusion
As mentioned earlier, Section 27
of the RBI Act, 1934 imposes an obligation on the Bank to maintain the quality
of note issue. Accordingly, the Bank framed and issued rules called the ‘RBI
(Note Refund) Rules’ in 1935 for the first time. In 1975, a new set of rules
known as the ‘RBI (Note Refund) Rules, 1975 was issued in order to abolish the
element of discretion, which was previously vested in the currency officers
and replace the same with precisely formulated rules intended to test and establish
the genuineness of the notes. Over the years with large and growing volume of
currency, the number of note examination sections and staff employed therein
were increased substantially with a view to enable the Bank to replace soiled
and mutilated notes as expeditiously as possible. Despite these efforts, the
number of claims against soiled and mutilated notes went on increasing and the
quality of notes in circulation was fast deteriorating. It was no longer possible
to maintain the quality of notes in circulation by the prevailing methods and
techniques of currency management. Hence to tackle this problem on an urgent
basis, the Bank came out with the ‘Clean Note Policy’ in January 1999.
As a follow up of the ‘Clean Note
Policy’ of the Bank, the supply of fresh notes and coins has increased adequately
with the setting up of new printing presses and modernisation of the existing
printing presses and mints. Periodically resorting to import of notes and coins
and temporary printing of rupees 5 notes has improved the supply position further.
The quality of notes has also improved considerably due to improved quality
of printing paper and addition of other distinctive features in the new series.
The notes are now less susceptible to forgery. Simultaneously, currency verification
and processing systems have stabilised in operation taking care of processing
and briquetting of soiled and mutilated notes. Most of the soiled and mutilated
notes, which were
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in circulation earlier, have now
been withdrawn. Bank’s instructions against stapling of notes and writing thereon
also had the desired impact. Thus the Bank’s ‘Clean Note Policy’ is showing
good results and being implemented successfully.
Nonetheless, there is no place
for complacency. There are challenges of adjusting the volume of various denominations
of currency notes and coins in accordance with the changing requirements of
the growing economy, their distribution across various states and regions throughout
the country amidst increasing security considerations, safeguarding the currency
notes, particularly high denomination notes from concerted onslaught of forgery
and continuously weeding out the soiled and mutilated notes from circulation.
To meet these challenges effectively, first of all the volume of currency notes
needs to be contained within sustainable levels. This can be achieved by shift
in preference from lower denomination notes to higher denomination notes, expanding
banking facilities throughout the country, particularly in rural areas and inculcating
banking habits among the masses. Coinising rupees ten notes could also be useful
in containing the volume of currency notes. At present, rupees ten notes constitute
about 25 per cent of the total volume, while they account for just 3 per cent
of the total value of currency notes issued. Secondly, there is need for continuing
the process of upgradation of systems, procedures, methods and techniques of
currency management in line with the best international practices so that clean
notes on an ongoing basis could replace the soiled and mutilated notes. In this
regard, early implementation of ‘Integrated Computerised Currency Operations
and Management System’ has become imperative. Thirdly, there is a need to educate
the public against stapling, multi-stapling and any type of writing on notes
through mass media, awareness campaigns and legally prohibiting these practices.
Finally, there is a need for adding distinctive features such as new design,
form, security thread, identification mark, printing image, special ink, etc.
in currency notes in order to distinguish them from forged notes.
RESERVE BANK’S CLEAN NOTE POLICY
These distinctive features should
be innovated through ongoing research and development efforts. Simultaneously,
there is a need for enhancing public awareness about these distinctive security
features in order to make it easier for the public to identify counterfeit notes.
In effect, there is a need for all concerned to make concerted efforts to make
the ‘Bank’s Clean Note Policy’ a success.
Select References
Kamesam, Vepa (2002): ';Distribution
of Notes and Coins in India';, a paper presented at Currency Conference
2002 at Honolulu, Hawaii.
Kamesam, Vepa (2003): ';Recent
Technological Developments in Indian Banking (Currency Management)';, a
paper presented at Central Bank of Sri Lanka, Colombo, August 20.
Reserve Bank of India (1970): History
of the Reserve Bank of India, 1935-51. Reserve Bank of India (1975): ';RBI
(Note Refund) Rules, 1975';, Bulletin, July. Reserve Bank of India
(1983): Functions and Working.
Reserve Bank of India (2001): Annual
Report. Reserve Bank of India (2002): Annual Report. Reserve Bank
of India (2003): Annual Report.
Reserve Bank of India: Various
Press Releases related to Currency Management issued by the Bank from time to
time.
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