RBI and its currency management

What are the currency notes in circulation in India?

Banknotes or currency notes currently issued in India are in the denomination of Rs  10, Rs 20, Rs 50, Rs 100 Rs  500, and Rs 2000. The bank notes are issued by the Reserve Bank of India (Reserve Bank). Small currency notes of Rs 2 and Rs 5 denominations has been discontinued. But the existing Rs 2 and Rs 5 notes continue to be legal tender and are in circulation. Though Rs 1 note is coinised, the Central Government has recently reintroduced this note.

What is the highest currency and coin that can be issued in India?

In terms of the provisions of the RBI Act 1934, notes in denominations higher than Rs 10000 cannot be issued. As per the Coinage Act, 1906, coins can be issued up to the denomination of Rs 1,000.

What was the highest denomination notes ever printed?

The highest denomination note ever printed by the Reserve Bank of India was the Rs 10000 note in 1938 and again in 1954. These notes were demonetized in 1946 and again in 1978.

What is the relative role of the Reserve Bank of India and the government in currency management?

The Reserve Bank gets its role in currency management from the Reserve Bank of India Act, 1934. The Government, on the advice of the Reserve Bank, decides on various denominations of banknotes to be issued. The Reserve Bank also co-ordinates with the Government in the designing of banknotes, including the security features.

Which are the RBI Departments engaged in issue of currency notes and its circulation?

          For the issue of currency notes and its circulation, the RBI has the Issue Department. It look after the currency notes in circulation and maintains a minimum reserve needed to issue currencies. Department of Currency Management has the responsibility of administering the functions of currency management, a core function of the Reserve Bank in terms of the Reserve Bank of India Act, 1934

The reserves comprise of gold and coring currencies to issue notes. The minimum reserve system was introduced in 1956 and it requires the RBI to keep a minimum reserve of Rs 200 crores comprising foreign currencies, gold coin and gold bullion. Out of this, Rs115 crore should be in the form of gold coins or gold bullion. This reserve is proposed as a token of confidence while printing currency and is not in proportion to the issue of currency value.

The Issue Department is permitted to issue notes only in exchange for notes of other denominations or against prescribed assets (foreign exchange and gold).

Who makes recommendation on currency design?

Government of India in consultation with the Reserve Bank of India decides the design of banknotes. In terms of Section 25 of RBI Act, 1934, the design of banknotes is required to be approved by the Central Government on the recommendations of the Central Board of the Reserve Bank of India.

On behalf of the Central Board, the Department of Currency Management makes the main design of bank notes. It also forecasts the demand for notes, and ensures smooth distribution of notes and coins throughout the country.

The Government of India is also responsible for the designing and minting of coins in various denominations.

When was legal tender of currency notes withdrawn?

The legal tender character of currency was withdrawn two times in the past. First, higher denomination banknotes of Rs 1000, Rs 5000 and Rs 10000 were demonetized in 1978. Second, Rs 500 and Rs 1000 denominations were demonetized in 2016.

What is the procedure for withdrawing legal tender status?

About the withdrawal of legal tender status (the action is known as demonetisation) the Section 26(2) of the RBI Act 1934 says that on recommendation of the Central Board of the RBI, the central government may, by notification in the Gazette of India, declare that with effect from a date specified in the notification, any series of bank notes of any denomination shall cease to be legal tender.

According to response to an RTI, the 2016 demonetisation got the ratification of RBI Board hours before PM’s announcement.

What is the constitution of the Central Board of Directors who can suggest demonetisation to the government?

The Reserve Bank’s affairs are governed by a Central Board of Directors (CBD). Members of the board are appointed by the Government of India in accordance with Section 8 of the Reserve Bank of India Act.

The CBD as the administrative apex body of the RBI, contains two sets of directors. First is the official directors and second, non-official directors.

The official directors comprised of the Governor and not more than four Deputy Governors who are appointed/nominated by the Central Government under the RBI Act.

Besides the official directors, there can be fourteen non-official directors as well in the CBD. Government can nominate two government officials into the CBD. As per December 29, 2016, there are 10 members in the CBD. According to the Government, this CBD has suggested withdrawal of legal tender status to Rs 500 and Rs 1000 notes.