Currency management is one of the key functions of the Reserve Bank of India (RBI). It includes issuance of banknotes, ensuring proper amount of currency, circulation of notes and coins, and maintenance of the quality of genuineness of currency.

                      The Reserve Bank of India (RBI) and the Government of India have shared responsibility for the Indian currency system. The RBI has the function of issuing banknotes, whereas the Government of India has the responsibility of issuing ₹1 notes and coinage.

Authority to Issue Banknotes and Coins

RBI's Authority to Issue Banknotes : 

                        According to section 22 of the Reserve Bank of India Act of 1934, the Reserve Bank of India has the sole monopoly over issuance of banknotes in India, excluding one rupee notes that are issued by the government of India.

Government's Authority to Mint Coins : 

                       According to the Coinage Act, 2011, it is the duty of the Government of India to manufacture coins. Though the task of manufacturing coins falls on the Government of India, they are supplied for use via the Reserve Bank of India under Section 38 of the RBI Act, 1934. Herein, there is an effective division between the manufacturing and supply of coins.

Denominations of Indian Banknotes and Coins

                       Currency is issued in various denominations in order to cater to the requirements of payments by the general public and industries. The Reserve Bank of India publishes currency FAQs wherein it mentions that the denominations in which currency notes have been issued include ₹10, ₹20, ₹50, ₹100, ₹200, ₹500 and ₹2,000. However, ₹2,000 denomination notes are no longer in circulation after May 2023. Even though these notes are still legal tender, banks have been asked not to issue such notes anymore. ₹1 notes are issued by the Government of India.

                       The issuance of ₹2 and ₹5 banknotes has been stopped since coins are more cost-effective. However, previously issued ₹2 and ₹5 notes are still considered legal tender. Coins are issued currently in denominations of 50 paise, ₹1, ₹2, ₹5, ₹10 and ₹20. As per Section 4 of the Coinage Act, 2011, the denomination limit for coins is ₹1,000.

History of Paper Currency in India

                        Paper money came into existence in India during the latter half of the eighteenth century. The early currency notes were issued by private banks and semi-government banks along with royal treasury agreements. Some of the organizations which issued paper currency included the Bank of Hindostan (1770–1832), General Bank of Bengal and Bihar (1773–1775), Bengal Bank (1784–1791), and Commercial Bank (1819–1828).

                        Under the Paper Currency Act of 1861, the Government of India had the monopoly right to issue paper money. The Office of the Controller of Currency was constituted in 1913, taking over from the Currency Department of the Government. After passing the Reserve Bank of India Act, 1934, the responsibility of issuing bank notes was taken over by the RBI from the Controller of Currency in 1935.

                         Initially, the printing of Indian banknotes took place in England. The first printing of currency notes in India started in Nashik, Maharashtra in 1928. A second government currency printing press was set up in Dewas, Madhya Pradesh in 1974. With an aim to cater to the ever-increasing demands for notes, the Reserve Bank of India created Bharatiya Reserve Bank Note Mudran Private Limited (BRBNMPL), which is a wholly owned subsidiary of the RBI. The RBI through BRBNMPL set up two currency presses in Mysuru-Karnataka and Salboni-West Bengal. The presses started operating in 1996. This improved the capacity of India in printing its notes.

Legal Provisions Relating to Banknotes

Section 24 of the RBI Act, 1934 : 

                       Section 24 of the Reserve Bank of India Act, 1934, talks about the denominations of bank notes. It gives power to the Central Government, upon recommendation of the RBI's Central Board, to prescribe denominations up to ₹10,000 and the non-issue of certain denominations. The denominations prescribed under the Act need not be the same as the ones that are presently being issued/circulated.

Section 33 of the RBI Act, 1934 : 

                       The banknotes that are issued by the RBI are guaranteed by assets which are specified under Section 33 of the RBI Act of 1934. Such assets include gold, foreign securities, rupee coins, and rupee securities of the Government of India. This statutory backing is part of the laws governing the issuance of banknotes by the RBI.

Models of Currency Distribution

There are different systems employed by central banks to issue bank notes to commercial banks and the general public. The three methods for issuing currencies are Wholesale method, Retail method and Semi-retail method.

Wholesale Model : 

                        In  wholesale system, commercial banks get banknotes from the central bank. These banks will ensure the delivery and safekeeping of banknotes in authorized cash centers and dispense the banknotes depending on their demand. Australia is one country that operates under this system.

Retail Model : 

                         In the retail system, the central bank maintains its own centers for keeping the currency to cater to the demand for currency by the public and other establishments. China and France follow this system.

Semi-Retail Model : 

                         India adopts the semi-retail system for distribution of currency. In this system, the RBI provides currency notes to the currency chest branches of banks. The RBI takes up the cost of transportation of banknotes along with other movement expenses, whereas banks incur the expense of managing the currency chests. The currency chests act as storage houses of banknotes and coins for the RBI and facilitate their distribution to the bank branches.

Salient Features of Indian Banknotes

There are several characteristics of Indian banknotes which help in identifying the issuer, the value of the banknote, and the liabilities attached to it.

Name of the issuer: The Reserve Bank of India name is printed in Hindi and English on the banknotes issued by the RBI.

Guarantee Clause: It provides the guarantee of the Central Government of India.

Promisory Clause: The words "I promise to pay the bearer the sum of Rupees …" convey the obligations of the RBI to the holder of the banknote as per Section 26 of the RBI Act, 1934.

Signature of the issuer: The RBI-issued banknotes bear the signature of the RBI Governor.

Number Panel: Each banknote bears a number panel which acts as an identifier. The number format varies according to series.

Denomination: The Denomination is provided through numerals or other design elements.

Mahatma Gandhi Portrait: Mahatma Gandhi series of banknotes has his portrait printed on it.

Language Panel: There is a language panel at the back of the banknotes which gives the denomination of the note in 15 Indian languages apart from Hindi and English.

Clean Note Policy

                       Clean Note Policy of RBI intends to make sure that high-quality banknotes are in circulation. Section 27 of the RBI Act, 1934 states that the RBI cannot reissue the damaged banknotes that are torn, defaced, or spoiled. In Clean Note Policy, dirty and unfit banknotes are withdrawn from circulation, analyzed, and processed. If the banknotes are fit for reissue, then these are reissued, and otherwise, they are destroyed.

Soiled Notes :

                        Soiled note means a bank note which is dirty because of ordinary wear and tear. Soiled note also includes a note comprising two parts stuck together, as long as these two parts belong to the same note and make the entire note, lacking nothing important.

Mutilated Notes :

                         Mutilated banknote is a damaged banknote where a part of the note is missing or consists of more than two parts. Mutilated notes can be presented for inspection and exchange in any bank branches according to RBI (Note Refund) Rules, 2009 (amended). The value of the note that is refunded is determined according to the existing rules and the state of the note.

overall,Clean Notes Policy helps maintain the quality of the currency in circulation among the public through removal of soiled and unfit banknotes.

Recent Developments in Currency Management

Banknote Quality Assurance Laboratory : 

                         It was opened by the Reserve Bank of India in Mumbai in October 2018. This laboratory has been created to enhance the standardization and objectivity of banknotes quality evaluation and certification both prior to and after printing at currency printing presses. Quality assurance is essential to make sure that the banknotes conform to the required quality standards.

MANI: Mobile Aided Note Identifier : 

                         The RBI released a mobile application called Mobile Aided Note Identifier (MANI) in January 2020, which allows visually impaired people to identify Indian banknotes. This application allows for independence in handling cash notes. But the application identifies the denomination of notes and does not verify the genuineness of the banknotes.

In Short

                          currency management is one of the key functions of the Reserve Bank of India, including the issue of banknotes and the distribution of currency. Although the Reserve Bank of India has the responsibility for the issue of banknotes, the responsibility for the issue of ₹1 notes and the minting of coins lies with the Government of India. The Reserve Bank of India Act, 1934, outlines the legal provisions of banknote issue and denomination. Through the currency distribution mechanism, Clean Note Policy, MANI etc., the Reserve Bank of India strives to provide good quality currency to the general public.