Indian Currency: Notes, Coins, Mints and Demonetisation

Currency is the most visible part of the Indian financial system and the one students are asked about most often, because every fact in it is settled by a statute. The Reserve Bank of India, established on 1 April 1935 under the Reserve Bank of India Act, 1934 and nationalised on 1 January 1949, issues banknotes, while coins and the one rupee note are issued by the Government of India. The notes are printed in four presses, the coins are struck in four mints, and the history of the rupee runs from the silver coin of Sher Shah Suri to the three demonetisations of 1946, 1978 and 2016.

Who issues what, and under which law

Section 22 of the Reserve Bank of India Act, 1934 gives the Reserve Bank the sole right to issue banknotes in India, and Section 24 allows notes of denominations up to ten thousand rupees, a higher denomination requiring an amendment of the Act. Notes other than the one rupee note carry the signature of the Governor of the Reserve Bank. The one rupee note is issued by the Government of India and carries the signature of the Finance Secretary, and coins are issued by the government under the Coinage Act, 2011, the Reserve Bank acting only as the agent that puts them into circulation. Since the amendment of 1956 the note issue rests on the Minimum Reserve System, under which the Reserve Bank must hold assets of two hundred crore rupees, of which gold is not less than one hundred fifteen crore rupees; before that, from 1935, a proportional reserve system was followed.

Where notes are printed and coins are struck

The mint of a coin can be read from the mark below the year: a diamond for Mumbai, a star for Hyderabad, a dot for Noida and no mark at all for Kolkata. The rupee symbol was adopted on 15 July 2010 and was designed by D. Udaya Kumar; it joins the Devanagari letter ra with the Roman letter R and carries two parallel lines at the top.

The notes themselves

• The language panel of a banknote shows the denomination in fifteen languages besides Hindi and English, so seventeen languages in all.
• The Mahatma Gandhi series was introduced in 1996 and the Mahatma Gandhi New series from 2016, each note of the new series carrying a motif of Indian heritage on the reverse.
• Security features include the watermark, the see-through register, latent images, micro-lettering, the security thread, intaglio printing, colour shifting ink on the higher denominations and a raised identification mark that helps a visually impaired user.
• Soiled and mutilated notes are exchanged under the Reserve Bank of India (Note Refund) Rules, and the Clean Note Policy of 2001 asked banks to stop stapling note packets.
• Notes printed to replace defective ones in a packet carry a star in the number panel and are called star series notes.
• Decimal coinage began on 1 April 1957, when the rupee was divided into one hundred paise, the new coin being called the naya paisa until 1964.

Demonetisation in Indian history

India has demonetised high denomination notes three times. In January 1946 the notes of one thousand, five thousand and ten thousand rupees were withdrawn by an ordinance; these notes were reintroduced in 1954 and were demonetised again in January 1978 by the High Denomination Bank Notes (Demonetisation) Act, passed when Morarji Desai was Prime Minister. The third and largest step came on 8 November 2016, when the notes of five hundred and one thousand rupees ceased to be legal tender, the stated aims being to strike at unaccounted money, counterfeit notes and the financing of terrorism; a new five hundred rupee note and a two thousand rupee note were introduced, and the Supreme Court upheld the decision by a majority in January 2023. On 19 May 2023 the Reserve Bank withdrew the two thousand rupee note from circulation under its Clean Note Policy, but that note was not demonetised and remains legal tender, a distinction examiners test directly.

A short history of the rupee

Sher Shah Suri issued a silver coin called the rupiya of about one hundred seventy-eight grains along with the copper dam, and the Mughals continued the system. Paper money came with private banks such as the Bank of Hindostan in the late eighteenth century, and the Paper Currency Act of 1861 gave the Government of India the monopoly of issuing notes, which passed to the Reserve Bank in 1935. The word rupee itself comes from the Sanskrit rupya, meaning wrought silver.