We have been reading several news items about the RBI’s proposal to issue polymer notes in India, on experimental basis. For last couple of moths I had in my mind a suggestion about introduction of  200 denomination currency note.

As you may be aware some countries like Austria, Belgium, Cyprus, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, Netherlands, Portugal, Slovenia, Slovakia, Spain  who have Euro as their currency have gone in for currency note of € 200 denomination right from day one of introduction of EUR (€). Countries like Switzerland [Swiss Franc (CHF)] and Israel [Shekel (₪)] do have 200 denomination bank notes. Similarly some other countries like Kazakhstahan (Tenge), Kyrgyzsthan (Som), Mexico (Peso) and North Korea (Won) do have denomination 200 bank notes.

For several reasons mentioned below I think Govt and RBI can closely examine the suggestion of introduction of currency of  200 denomination.

Pros:

      New denomination will ease pressure on  100 and 500 denominations. There is no intermittent currency between  100 and 500. Due to inflation purchasing power of money has got considerably reduced. Average value of a normal cash transaction has gone up. Public at large have to use notes of  100 denominations for small routine transactions. Due to excessive fear associated with counterfeit notes of 500 denominations the pressure on  100/- note has further gone up. People readily accept  100 note as compared to  500 currency note. For a transaction of  200plus or 400plus+ one may use  500 as well as  100 denomination notes. As a result the active life of  100 notes (in terms of days) in circulation has come down.

      In India preference of public at large is towards cash transaction. The spread plastic currency – Debit / credit cards and  e-transaction yet to reach critical level.

      Symbol  as approved by GOI (mix of Roman and Devanagari alphabet) can be used on this currency note right from day one.

      Several new security features (even from experimental angle) can be introduced (given that it is a moderate value denomination note) on a new denomination currency note.

      Instead of printing polymer notes of  10, 20, 50 or  100 denominations it would be relatively easier to introduce notes of  200 denominations on trial basis. As the note of this currency denomination currently does not exist. If after certain point of time it is found that the currency note of this denomination is not changing hands well or is not used by public at large on the expected lines demonetization of  200 denomination notes would be very easy as there will not be any legacy of different design, patterns and tranche specific features and all notes in circulation would be that of recent past. 

      It is also possible to first to go-in for banknotes/currency notes of 200 denominations in paper cum cotton (tricot) material as used currently. Polymer notes may require creation of lot of awareness among the public so that public will not find any difficulty while dealing with these notes (Polymer has larger life span if used properly and can be washed with soap, water, dried etc. Counterfeiting polymer notes is difficult).

      As polymer notes can be washed, some noting such as name etc written by some rough users can be washed. Life of note will not get impacted due to such writing.

      RBI can think of introducing certain new security features and improving on certain old security features that are present in certain higher denomination currency notes like: Variable colour ink, Checksum, Constellation, different Watermarks (Standard watermark / Digital watermark / Infra-red and ultra-violet watermarks, Printing registration, Raised printing, Bar code, Security thread , selective usage of Magnetic ink,  Micro-print, Matted surface,  Special features for people with impaired sight, increase in paper dimension / size of currency. Size of   200 denominations can be placed between size of  100 and  500 denomination. Higher denomination like 200,  500 and  1000 notes can have distinctive tactile patterns along the edges of the notes e.g the  200 note can have vertical lines running from the bottom / bottom centre to the right-hand corner. Note of  500 can have diagonal lines running down the right-hand edge and  1000 note can have vertical lines running from the bottom centre to the left-hand corner and so on. Certain features like Check-sum, Bar code can be introduced. Increase in the numbering digits from 6 to 11 (excluding Alpha character/s) can also be considered for this note on test basis which can be later extended to other high denomination notes like   100,  500 and  1000.

Con:

      Note handling habits of Public may need to be changed. Public at large should be made aware that polymer notes should not be folded, ironed (small tear can rip the note in two halves). Time required for creating public awareness, looking at the need to update Note Refund Rules would take considerable time. If RBI / Govt proposes  200 denomination note together with the polymer form of material instead of tricot (mixture of paper and cotton) material.

RBI can seek views of currency experts, general public, other central Banks / Regulators on their experience and seek broader views on this aspect.

If after debate within RBI it is felt that RBI can further examine the suggestion, below mentioned provisions of Reserve Bank of India Act may need to be considered:

1.    In terms of Section 25 of RBI Act, 1934 the design of banknotes is required to be approved by the Central Government and that the recommendation for a design of banknote / currency note is to come with the recommendations of the Central Board of the Reserve Bank of India.

2.    As per Sec 24 (1) of Reserve Bank of India Act, 1934 bank notes shall be of the denominational values of two rupees, five rupees, ten rupees, twenty rupees, fifty rupees, one hundred rupees, five hundred rupees, one thousand rupees, five thousand rupees and ten thousand rupees or of such other denominational values, not exceeding ten thousand rupees, as the Central Government may, on the recommendation of the Central Board, specify in this behalf. For introducing a new denominational value of two hundred rupees, the Central Government may have specify  200 in this behalf following the recommendation under Sec 24 (1) of Reserve Bank of India Act, 1934 and this can follow after the RBI’s Central Board recommends for it since this denomination unfortunately does not figure in the aforesaid Section.

3.    In terms of  Sec 25 of Reserve Bank of India Act, 1934  form of bank notes (its design, form and material of bank notes shall be such as may be approved by the Central Government) and the recommendation for which has to come from RBI’s Central Board. This is true for paper cum cotton (tricot) material or for introduction of polymer note/s or of any denomination Sec 24 (1) of Reserve Bank of India Act, 1934.

4.    Every banknote issued by Reserve Bank of India shall be legal tender (at any place in India in payment or on account for the amount expressed therein) provided it is guaranteed by the Central Government and it should be  subject to meeting provisions of sub-section (2) Section 26 of RBI Act, 1934. Currently   notes of 2, 5, 10, 20,  50, 100, 500 and 1000 denomination have status of a legal tender.

Initially RBI with the concurrence of Central Govt. can consider introducing in relatively smaller number / quantity to test the usage (with enough penetration), adaptability by public and other relevant incidence at select towns / cities.

In the event the idea of 200 denominations does not go well for any or various reason/s RBI may discontinue printing of further 200 denominations notes or may go to Central Govt. to get direction or non-issue or discontinuance of such denominational values as Govt may specify in this behalf.

As per my information EURO zone is using this denomination for almost a decade same is with the CHF and Israel Shekel etc.

However study / analysis of experience of these countries with respect to CHF ­/ € 200 denomination may not be very useful in our case as CHF / € 200 denominations currency notes command considerable purchasing power and level of the penetration of plastic card / credit /debit card in the society.

As per the recent press reports the Govt/RBI, on experimental basis, has initiated circulation of polymer currency note of 10 denominations which it proposes later to extend to other parts of the country. It is worthwhile to have a public debate on this idea.

About the Author: Mr Chhatre  is a post-graduate in Commerce with CAIIB.  He is a university Rank holder at both graduation and PG level. He had joined banking industry as a direct recruit officer in Scale –II in year 1978 and had worked in several capacities at Branches, Corporate Office of PSU, New Pvt sector and MNC Banks. He had also held a position of CEO FIMMDA (a Banker’s Association). Last position held was Head of Ethics Compliance in a MNC Bank.     He has strong Treasury background.  He has worked as Head Integrated Treasury (Operations) in two new large Pvt sector banks and a Head of Domestic Treasury, Mumbai of a PSU Bank. He has a good name in Treasury and compliance field.  He can be contacted at   Tel: 91 22 28210125   Cell: 9819380114