Subscribe Us

What is it that we as Indians are collectively doing wrong?

Writing on currency notes.

A loss of Rs. 2600 cr per annum due to this reckless act. A lot of rumours on this incident but read full answer to get better understanding.

Of course, there were many false news spreading on Social Media urging not to write on currency notes and these notes won't be accepted by banks starting 1st Jan 2016. This news is absolutely false and RBI governor has clarified on the same.

But, that doesn't mean that its not effecting our economy. It is effecting our economy and there is also a law for the same which is not taken very seriously by almost all the people of the country. Writing on notes can be illegal -  Under Section 35A of the Banking Regulation Act 1949.

Problem with scribbled currency notes:

We can make payments, collect cash even when the currency notes are scribbled. The major problem is such notes cannot be used for standard banking transactions.

How much does it cost the government to print notes?

There's an exhaustive analysis on Livemint

In reply to a right to information request, the RBI in 2012 released data on what it costs to print notes of each denomination. In absolute terms, the trend is one of increasing costs as the denominations become larger. This can be explained by the fact that higher denomination notes require more complex security features embedded in the note.

However, the cost of printing a note as a percentage of its value is higher for notes of lower denominations. For example, the cost of printing a Rs.10 note is almost 10% of the value of the note whereas the cost of printing aRs.100 note is less than 2% of its value.

How many notes did RBI print in 2013-14?

No idea. I couldn't find any data here. So we can only try and make some intelligent guesses.

The RBI increased the money supply from 2012-13 to 2013-14 from INR 12.835 trillion to INR 14.265 trillion (difference of INR 1.43 trillion). And below is the composition of total currency in circulation.

Assuming that the composition remains the same, the total number of notes printed will be (2,5,10,20,50,100,500,1000) = (0.47, 0.83, 2.97, 0.48, 0.38, 1.65, 1.27, 0.57).

The cost of printing these notes would be = sumproduct (0.47, 0.83, 2.97, 0.48, 0.38, 1.65, 1.27, 0.57) * (0.48, 0.96, 1.5, 1.81, 1.79, 2.5, 3.17) 
= INR 12.8 billion
= INR 12,800 Crore.

Notice that not all notes printed are for replacing old/defaced notes. Some of it is printed to increase the monetary supply and depends on many factors like macroeconomic outlook and forecast, GDP growth, inflation etc.

But even if one-fifth (~20%) were printed to replace the said notes, the total cost would be around 2,600 Cr.

Source : Quora

Post a Comment