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Indian government’s move to demonetise old high denomination currency notes of ₹500 and ₹1,000 is sucking out massive liquidity from the system. Reports suggest now that the RBI’s subsidiary Bharatiya Reserve Bank Note Mudra Pvt Ltd has shortlisted four foreign firms to provide three kinds of plastic currency notes for field trials so that the government could introduce plastic notes in the system starting with ₹10 denomination. However, it seems the government missed the boat and it would have been wiser to introduce the new high denomination currency notes in plastic currency.
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A report in The Telegraph says that BRBNMPL has shortlisted UK-based De La Rue, Australia’s Innovia, Munich-based Giesecke & Devrient and Swiss company Landquart for providing the notes. The first will be entirely polymer-made. The others will be plastic-paper note on plastic and paper-plastic note on paper.
The idea for introducing plastic currency notes in India has been around since as early as 2012. The government and RBI announced in 2012, 2014 and 2015 plans for the introduction of 1 billion plastic notes of ₹10 denomination in five cities for field trials. The government, however, never acted on it.
Plastic currency notes can be printed at least 10 times faster than paper currency notes, according to the Commonwealth Scientific and Industrial Research Organization (CSIRO). It also estimates that the lifetime of plastic notes is higher than paper notes by up to 4 times. They don’t get soiled easily and it’s hard to scribble on. It is also much harder to counterfeit due to some security measures that paper notes can’t accommodate and composites that are difficult to replicate unlike paper.
So, in a way, tackling post-demonetisation cash crunch would’ve been easier with plastic notes. Also, these notes have a longer life time.
The government, meanwhile, has come out with new ₹2,000 and ₹500 paper notes of new design and measurements. After demonetisation, thousands of crores of pieces of new currency notes are being printed to replace the demonetised paper currency. By the time the plastic currency field trials are concluded, there will be enough notes of the new currency in the system that the plastic note currency plan will never be able to take off on high denomination notes.
It is a waste of money as the high denomination notes, which cost more to print than the small denomination notes, will have to be printed again if the move to plastic currency notes is actually adopted – something which will prove to be a monumental and wise currency reform for India.
Every year, government estimates, 20 per cent notes are destroyed as they are soiled/ruined/deemed unfit for use. This causes a loss of up to ₹ 2 lakh crore to the exchequer every year.
Upon analysing the new ₹2,000 note with the naked eye, you can figure out that the note has some jarring design elements with alignment issues. The notes have more of a design change rather than radical security enhancement. Furthermore, the notes are different in size to the old ₹500 and ₹1000 notes. If the new notes were of the same size as the old notes, there wouldn’t have been any need to carry out physical recalibration of the over 200,000 ATMs in the country.
One of the primary reasons provided by the government for demonetisation was invalidating black money in form of unaccounted cash and taking out currency that was prone to counterfeit and was being used exceedingly in funding terrorist activities and other such acts. However, regular reports are surfacing of people already starting counterfeiting of the newer notes as well.
The government and the RBI insist that the newer notes have enhanced security features and will make the hoarded black money used for unscrupulous means useless. The government had the option of bringing out higher denomination notes in plastic which would’ve been ideal as they are very difficult to counterfeit and has almost stopped counterfeiting problems in many countries.