India to introduce plastic currency notes

Saturday, November 21, 2009
MUMBAI: Bargaining is a way of life in India. Even the smallest transactions are open for negotiation, but all too often the argument rests not on the quantity to be paid, but the quality of the cash.

Grubby banknotes are legion, ripped, sullied, scribbled on or simply overused to the point of illegibility. Nobody wants them and, if you’ve got one, spending it is going to involve either subterfuge or confrontation.

Now the central bank is planning to introduce “plastic” notes, with the dual aim of improving their shelf life and combating counterfeiting. The number of fake notes in the system has risen nearly 95 per cent in the past five years, according to data from the Reserve Bank of India (RBI) which has floated a global tender for introducing polymer varieties.

A senior RBI official, speaking on condition of anonymity, told AFP that the initial plan was to introduce one billion 10-rupee notes, with the first examples expected in circulation before the end of next year.

“The aim is to deal with the problems of counterfeit money and the soiling of notes due to extensive usage and climatic problems,” the official said.Experts say the central bank also has plans to print polymer currency in higher denominations, which are the focus for counterfeiters.

“The RBI seems to be testing the market and sending a message that it is on top of this issue,” said Mohandas Pai, a member of the RBI’s expert committee on currency distribution.“It (the RBI) will take many more steps to ensure the integrity of the system,” Pai, who sits on the board of Bangalore-based IT giant Infosys Technologies, told AFP.

The life span of “plastic money” is four to five times higher than that of paper money and it is far more difficult to forge. Police and the central bank have seen a tripling in the value of counterfeit notes detected or seized in raids in recent years.

In all, the 95 per cent increase in counterfeit notes in circulation in the five years to March 2009 equates to 400,000 notes valued at 150 million rupees, the RBI said. This does not include notes seized by police and enforcement agencies.

Currency management and the quality of notes are critical in a country like India, where there is still a marked preference for cash transactions.

“It makes sense to consider plastic money, as it reduces the probability for faking these notes and increases the life for such notes, with less wear and tear,” said Mridul Saggar, chief economist with private finance house Kotak Securities.

The RBI said that 12 billion notes were classed as “soiled” as of March 2009, and admits that maintaining quality is a “huge challenge”.

A number of countries have used plastic or polymer notes for a long time. Australia has been using them since 1966 while they have also been introduced in New Zealand, Romania, Brunei and Vietnam.

But plastic notes are not fool-proof, only reducing but not solving the problem of counterfeiting, much of which is linked to money laundering, drugs and organised crime.

“India needs to invest more to make the system robust. Counterfeiters are becoming more tech savvy and larger interests may be involved,” Pai said.

In India, people prefer using higher denomination currency like 500 and 1,000-rupee notes, while the 100-rupee note is the most widely used, making up nearly 30 per cent of the total notes in circulation.