Notes and
Coins that are sent for circulation when deposited back in the banks by the customers are examined by concerned banks and spoils ( opined as unserviceable) found in them are further deposited by them at
the offices of the Reserve Bank. The Reserve Bank then
separates the Notes that are fit for re-issue and those not usable any
more. The Notes thus sorted as unserviceable will
not go back to the Banks for recirculation again are destroyed with
certain measures. The same is the case with coins which are destroyed by
melting and melted metals reused for other purposes. This factor-- serviceable and unserviceable Note -- thus plays an important role in determining the annual demand for printing. The issuable Currencies after further sorting
out in RBI will again go back for circulation, while totally unusable Currencies are
withdrawn from circulation and goes for destruction with certain set
procedures.
One of the reports suggest that compared to the year 2000
when around 3500 million pieces of Bank Notes were targeted for
withdrawal as unserviceable, it was estimated by the Committee that the withdrawal of unserviceable
Bank Notes may go up by seven times during the year 2010.
See below
one sample data given in the 'Report of the Committee on Currency
Management' to show the combination of Notes that were in circulation during the period 1983 till 1989. The data show that out of total Notes in circulation, 50 -60 % 0f the Notes came
back for sorting out of which 10-12 % goes back into circulation as usable, while 80 % from the 50-60% notes that came back for sorting are withdrawn as unserviceable.
(Ref: Graph based on figures taken from the
Report of the Committee on Currency Management)
The
Committee which recorded the above finding however has not indicated
whether the notes offered for withdrawal
have been actually withdrawn or re issued later. Therefore we presume that
the
quantum of Bank Notes shown in the report as offered for withdrawal may have been actually withdrawn from circulation. The
above data reveal that every year almost 35-40 % of the
Notes in circulation are of fresh Notes and hardly 10-11 % % is reissued
from the
salvaged notes (sorted as usable and unusable) .
Since the entire quantum of notes in circulation at a given period of time can not be withdrawn for scrutiny or deposited by the customers in the banks, some percentage of Notes already in circulation remains actually in circulation and thus needs to be added with this quantum of Bank Notes given in data. The Committee's work out covered only 70-80 % of the actual Notes in circulation. Therefore what will be the final position of various categories of Notes during those period analyzed ? The following table will illustrate the actual position for the same years surveyed as indicated above:-
(Ref: Graph based on figures taken from the
Report of the Committee on Currency Management and
RBI Database /Notes and Coins issued / Table 159)
This crucial factor (unserviceable Notes)
which annually works out to an average of 25 % and fresh Notes infused on an average of 40% is also one of the factors
considered while drafting the demand for printing of Bank Notes.
Processing of huge quantum of Notes offered for withdrawal which is around 35 % annually as could be seen from the above data and hereto carried out by
manual examination in RBI is an area that remains unpredictable while drafting out the annual printing requirement for Bank Notes since
assessing the serviceable and unserviceable Notes
by manual examination is not an easy task to carry out. Attempts are made by RBI to ensure that at least 50 % of the Notes in circulation are that of fresh Notes issued annually to increase the life of Notes in circulation.
One
important point to be borne in mind on the issue of Paper Money and
Coins is that the issuance of the Paper Money is carried out by RBI
under Section 22 of the Reserve Bank of India Act, 1934 while the Govt
which is responsible for the issue of the Coins does the function
through RBI. The RBI does not independently and directly handle the
Coinage issues.
In
this issue one of the important observation made by
another expert committee of RBI which compiled a report ''Modelling
Currency Demand in India'' need mention here which indirectly throws
light as to why the Projection of printing requirement for Bank Notes remains difficult and often go wrong:
Quote:
Introduction : Para -8 :- Generally,
the denominational structure of currency comprises 4 to 5 coin
categories in the lower denomination and 5 to 6 note categories in the
higher denomination. Considering that the lower denomination currencies
are used for small value transactions, which account for a major part of
the cash transactions, these denominations have a greater degree of
velocity of circulation. This is why the lower denomination currencies
are issued in the form of coins having a much longer life than notes. In
the short and medium term, the structure of denominations may not
undergo change and, therefore, the estimation problem essentially
relates to determining the value and volume of requirement of the
existing denominations. However, in the long term, the issues such as
introduction of new higher denomination notes, discontinuance of low
denomination coins and coinisation of lower denomination notes etc
assume importance and require careful attention in keeping with the
objective of managing the volume of currency in circulation.............
( Ref: Modeling Currency Demand in India: An Empirical Study- by Development Research Group of RBI)
----Unquote
Coming
back to the issue of forecast and raising demand for printing of Bank
Notes, as stated earlier, based on certain statistical data the Reserve
Bank decides upon the volume and value of Bank Notes to be printed
annually which again partly relies on the quantum of recovery from the
Soiled notes. As per one of the documents presented in the Currency
Conference held in the year 2002 in Honolulu, Hawaii, it has been
indicated that the annual requirement of Bank Notes for RBI is 12000
Million pieces. However the fact is otherwise as will be discussed later.
Projection
of Currency requirement will be a arduous task in a country like India
where over 70 % of the population live in Villages and the labour force
works out to be very strong in number that includes agricultural
labourers to labourers of various nature in other industries. Most of
them get their wages only in cash. They cannot be expected to get their
transaction done through in card or other means except handling cash as
the cash they get is hardly enough to carry on the family requirement.
Moreover India being a orthodox country has many festive and marriage
seasons that surface almost six to seven months in a year and only huge
cash transaction takes place in every one of the occasions.
Hoarding
of cash is another issue that rattles Indian economy. The price level
and inflation is also becoming unpredictable mainly due to several
unforeseen International activities such as crude oil prices which
disturbs the economics which again indirectly influences the Money
circulation.
As said earlier the other important aspect in deciding the demand- supply
is the salvaging of the Soiled notes into usable and unusable notes to
put them in circulation along with fresh notes besides weeding out the
underground circulation of Counterfeit notes which gets mixed up with
the genuine notes thwarting all idealistic calculations. It may be
easier to project the production figures on Currency printing from the
Presses and Supply line based on previous years statistics, but the
demand being highly fluctuating factor, only 60-70 % success rate in
projection can be can be achieved as indicated in previous Chapter .
............continued : 7