A Simple Guide On Methods Of Note Issue

Before, we all now understood how RBI determines what quantity of currency is to be printed… Allow us first to have a bit of background about its measure and history. Initially, within human civilization, there was a barter system. People would exchange one good for an additional one, such as you give me milk and then I shall provide you with bread but thanks to the restrictions of this method, for instance, an individual cannot store perishable goods like milk, bread, vegetable etc. for an extended period, also it’s not necessary that if someone who has bread and desires tomato finds someone else having tomato and requiring bread. This created an issue of currency. So, this method was abolished, and coins were introduced.

In the beginning, coins were made from gold and silver. Gold and silver are costly. That is why coins products of gold and silver carry their own value.  Coins don’t need an asset to back their value, unlike today’s currency. In history, there came a time within the period of Muhammad bin Tughluq when they lacked gold and silver. Then they started using other metals like copper and brass that were in abundance to create a coin. But the coins failed to have any security features. People began making coins in their houses. As a result, fake coins increased in circulation. Foreign exporters were also not willing to accept brass and copper coins. So again, coins were replaced with gold and silver. This continued till the British period. 

In 1916, Britain was engaged in World War 1, and there was a shortage of silver in India. So as to help themselves out of it, they introduced paper money in India. 

In 1935 Federal Reserve Bank of India was established. It’s accountable for the planning, production and overall management of the nation’s currency, with the goal of ensuring an adequate supply of fresh and genuine notes. Printing of currency notes in India is completed on the idea of a Minimum Reserve System. The Minimum Reserve System technique has been applicable in India since 1956. According to this technique, the banking concern of India has got to maintain assets of a minimum of; out of these 200 crores, the 115-crore rupee should be within the variety of gold or gold bullion, and the rest 85 cr. should be within the style of foreign currencies. After maintaining the Minimum Reserve, the RBI can print any number of currency notes as per the need of the economy. 

How is it determined what Quantity of Currency is Required? 

RBI prints currency supported by the GDP rate of growth forecast of the country. Suppose there’s someone Ajay who sells bread and earns money. He spends his earned money elsewhere to shop for his necessities, say from someone named Divyansh. Divyansh again purchases his necessities, and thus this money starts rotating within the economy. 

This rotation of cash creates the multiplier effect. Because of this multiplier effect, total money in circulation within the economy virtually increases. 

Now, there are businessmen who need more cash to provide more goods in the coming time. To fulfil this requirement, RBI makes a forecast of the GDP rate of growth within the coming year. Based on this forecast and considering this supply and expected money and multiplier effect, RBI calculates the specified amount of currency that must be printed. In this whole process, RBI confirmed that it doesn’t print more currencies than needed. If it prints more currency than required, then the rate of inflation may increase. If it prints less than required, then the economy might not operate at full capacity and will not be ready to attain the targeted GDP rate. To control inflation, RBI uses many fiscal and monetary policies like Cash Reserve Ratio, etc.

Now, the currency is backed by sufficient assets like gold and foreign currency because if not backed by an asset, the value of the currency may fall, as in the case of Venezuela. Till now, you want to have noticed that be it goods within the barter system, coins of gold and silver or currency, such a correspondence is created that there should be the value of the ‘things’ you’re exchanging. Even there’s the value of paper money because it’s backed by RBI’s assets. The creation and providence of currency are managed by the bank of India. For coins, the govt. India is the issuing authority of coins, and it supplies coins to the bank on demand. The Federal Reserve Bank puts the coins into circulation on behalf of the Central Government. Department of Currency Management, in cooperation with the problem Departments of the Reserve Bank’s Regional Offices across India, overseas currency management.

This is achieved through a large network of over 4000 currency chests of economic banks. Currency chests are extended arms of the bank, issue Departments and are responsible for efficiently finishing the requirement. 

There are four printing presses that print and provide banknotes. The presses in Madhya Pradesh and Maharashtra are owned by the Protection Printing and Minting Corporation of India, which could be a wholly-owned company of the government of India. The presses in Karnataka and the province are owned by the Bharatiya banking concern.

Conclusion

Mudran Private Limited, which could be a wholly-owned subsidiary of the banking company. The bank has a monopoly on issuing currency notes of all denominations except one rupee note. So, the one-rupee note is issued by the Ministry of Finance but distributed by the RBI through commercial currency banks. Did you recognize that the RBI keeps its gold with foreign institutions like the Bank of England for security purposes? Think about it.