CURRENCY MANAGEMENT: ISSUES AND CHALLENGES IN THE STATE OF J & K

CURRENCY MANAGEMENT: AN OVERVIEW
1 CURRENCY MANAGEMENT | RBI
INTRODUCTION
The Reserve Bank of India was established on April 1, 1935 under the provisions of the Reserve
Bank of India Act, 1934, enacted by the Parliament.
The Central Office of the Reserve Bank was initially established in Calcutta but was permanently
moved to Mumbai in 1937. The Central Office is where the Governor sits and where policies are
formulated.
Though originally privately owned, since nationalization in 1949, the Reserve Bank is fully
owned by the Government of India.
“The guiding principle for a Central Bank, whatever function or group of functions, it performs at
any particular moment, is that it should act only in public interest and without regard to profit as
a primary consideration.”

The functions of the Reserve Bank today can be categorized as follows:
 Currency management, custodian of forex reserves.
 Banker to banks.
 Banker to the Central and State Governments.
 Management of foreign exchange reserves.
 Foreign exchange management—current and capital account management.
 Monetary policy.
 Regulation and supervision of the banking and non-banking financial institutions,
including credit information companies.
 Regulation of money, FOREX and government securities markets as also certain
financial derivatives.
 Debt and cash management for Central and State Governments
 Oversight of the payment and settlement systems.
 Developmental role.
 Research and statistics.
FUNCTIONS OF RBI

“Currency management essentially relates to planning, designing, issue and withdrawal of
currency, ensuring its integrity, availability and the maintenance of quality”.
As per the section 22 of The RBI Act, 1934 [Right to Issue Bank Notes]
“The Bank shall have the sole right to issue bank notes in India, and may, for a period which shall be
fixed by the Central Government on the recommendation of the Central Board, issue currency notes of
the Government of India supplied to it by the Central Government, and the provisions of this Act
applicable to bank notes shall, unless a contrary intention appears, apply to all currency notes of the
Government of India issued either by the Central Government or by the Bank in like manner as if such
currency notes were bank notes, and references in this Act to bank notes shall be construed accordingly.”

1.1. PREAMBLE
The Preamble of the Reserve Bank of India describes the basic functions of the Reserve Bank as:
As per the preamble of RBI Act, currency management is the major responsibility of Reserve
Bank of India. The Paper Currency Act of 1861 conferred upon the Government of India the
monopoly of note issues, thus ending the practice of private and presidency banks issuing
currency. Between 1861 and 1935, the Government of India managed the issue of paper
currency. In 1935, when the Reserve Bank began operations, it took over the function of note
issue from the Office of the Controller of Currency, Government of India. As per the Section 22
of The RBI Act, 1934, The Reserve Bank is the sole authority to issue banknotes in India. Thus
RBI holds a Monopolistic Position in issuance of currency. Although one rupee notes and coins
of all denominations are issued by the government, they are put into circulation only through the
Reserve Bank. Despite increasing spread of technology-driven non-cash modes of payment, the
demand for banknotes and coins continues to rise. The RBI Act casts on the Reserve Bank the
responsibility of not only providing banknotes in adequate quantity throughout the country, but
also maintaining the quality of banknotes in circulation.
1.2. OBJECTIVES OF CURRENCY MANAGEMENT
1. Print notes and mint coins.
2. Distribute adequate notes and coins.
3. Maintain quality of notes in circulation.
4. Withdraw unfit notes from circulation & destroy them.
5. Keep up well secured processes for accounting.
"...to regulate the issue of Bank Notes and keeping of reserves with a view to securing
monetary stability in India and generally to operate the currency and credit system of the
country to its advantage."

1.3. FUNCTIONS OF DEPARTMENT OF CURRENCY MANAGEMENT
The Department addresses policy and operational issues relating to:
1. Designing of banknotes.
2. Forecasting demand for notes and coins.
3. Ensuring smooth distribution of banknotes and coins throughout the country and retrieval
of unfit notes and uncurrent coins from circulation.
4. Ensuring the integrity of bank notes.
5. Administering the RBI (Note Refund) Rules.
6. Reviewing/rationalising the work systems/procedures at the issue offices on an ongoing
basis.
7. Dissemination of information on currency related matters to the general public.
The Reserve Bank carries out the currency management function through its Department of
Currency Management located at its Central Office in Mumbai, 19 Issue Offices located across
the country and a sub-office at its Kochi. To facilitate the distribution of notes and rupee coins
across the country, the Reserve Bank has authorized selected branches of banks to establish
currency chests. As on December 2011, there is a network of 4,221 Currency Chests and 4,018
Small Coin Depots with other banks. CURRENCY CHESTS are storehouses where bank notes
and rupee coins are stocked on behalf of the Reserve Bank. The currency chests have been
established with State Bank of India, six associate banks, nationalized banks, private sector
banks, a foreign bank, a state cooperative bank and a regional rural bank. Deposits into the
currency chest are treated as reserves with the Reserve Bank. Withdrawals from the currency
chests results in an increase in notes in circulation and thus increase in liability of the issue
department. Like currency chests, there are also small coin depots which have been established
by the authorized bank branches to stock small coins. The small coin depots distribute small
coins to other bank branches in their area of operation.

TABLE I: CURRENCY CHESTS AND SMALL COIN
DEPOTS AS AT END-DECEMBER 2011
Category No. of Currency
Chests
No. of Small Coin
Depots
Treasuries 11 -
State Bank of India 2192 2118
State Bank Associate Banks 778 775
Nationalised Banks 1124 1009
Private Sector Banks 107 107
Co-operative banks 1 1
Regional Rural Banks 3 3
Foreign Banks 5 5
TOTAL 4221 4018
The currency in circulation is backed by eligible assets which consist of gold coin, gold bullion,
foreign securities, rupee coin and rupee securities as mentioned in the Section 33 of The RBI
Act, 1934.The aggregate value of the gold coin, gold bullion and foreign securities held as assets
and the aggregate value of the gold coin and gold bullion so held shall not at any time be less
than two hundred crores of rupees.
The Department of Currency Management makes recommendations on design of bank notes to
the Central Government, forecasts the demand for notes, and ensures smooth distribution of
notes and coins throughout the country. It arranges to withdraw unfit notes, administers the
provisions of the RBI (Note Refund) Rules, 2009 (these rules deal with the payment of value of
the soiled or mutilated notes) and reviews/rationalizes the work systems and procedures at the
issue offices on an ongoing basis.
For printing of notes, the Security Printing and Minting Corporation of India Limited (SPMCIL),
a wholly owned company of the Government of India, has set up printing presses at Nashik,
Maharashtra and Dewas, Madhya Pradesh. The Bharatiya Reserve Bank Note Mudran Pvt. Ltd.
(BRBNMPL), a wholly owned subsidiary of the Reserve Bank, also has set up printing presses at
Mysore in Karnataka and Salboni in West Bengal.

As per the Section 23 of The RBI Act, the Reserve Bank’s affairs relating to note issue and its
general banking business be conducted through two separate departments – the Issue Department
and the Banking Department. All transactions relating to the issue of currency notes are
separately conducted, for accounting purposes, in the Issue Department. The Issue Department is
liable for the aggregate value of the currency notes of the Government of India (currency notes
issued by the Government of India prior to the issue of bank notes by the Reserve Bank) and
bank notes of the Reserve Bank in circulation from time to time and it maintains eligible assets
for equivalent value. The assets which form the backing for note issue are kept wholly distinct
from those of the Banking Department. The Issue Department is permitted to issue notes only in
exchange for notes of other denominations or against prescribed assets. This Department is also
responsible for getting its periodical requirements of notes/coins from the currency printing
presses/mints, distribution of notes and coins among the public as well as withdrawal of
unserviceable notes and coins from circulation. The mechanism for putting currency into
circulation and its withdrawal from circulation (that is, expansion and contraction of currency,
respectively) is effected through the Banking Department.
1.4. CURRENCY UNIT DENOMINATION
The Indian Currency is called the Indian Rupee, and its sub-denomination the Paisa. At present,
notes in India are issued in the denomination of Rs. 2, Rs.5, Rs.10, Rs.20, Rs.50, Rs.100, Rs.500
and Rs.1, 000. The printing of Rs.2 and Rs.5 denominations has been discontinued. However,
notes in these denominations issued earlier are still legal tender. As per the Section 24, The
Reserve Bank is also authorized to issue notes in the denominations of five thousand rupees and
ten thousand rupees or any other denomination, but not exceeding ten thousand rupees that the
Central Government may specify.
1.5. COIN DENOMINATION
Coins in India are available in denominations of 50 paisa, one rupee, two rupees, five rupees and
ten rupees. Small coins of 10 paisa, 20 paisa, 25 paisa ceased to be legal tender with effect from
June 30, 2011. Coins up to 50 paisa are called “small coins” and coins of Rupee one and above
are called “Rupee coins”. As per the provisions of Coinage Act, 1906, coins can be issued up to
the denomination of Rs.1, 000.

Subject to the provisions of Section 26, every bank note shall be legal tender at any place in
India in payment or on account for the amount expressed therein, and shall be guaranteed by the
Central Government. No bank note of the denominational value of five hundred rupees, one
thousand rupees or ten thousand rupees issued before the 13th day of January, 1946, shall be
legal tender in payment or on account for the amount expressed therein.
1.6. EXCHANGE OF NOTES
As per the Section 39 of The RBI Act the Bank can issue rupee coin on demand in exchange for
bank notes and currency notes of the Government of India, and can issue currency notes or bank
notes on demand in exchange for coin which is legal tender under the Indian Coinage Act, 1906.
In exchange for currency notes or bank notes of two rupees or upwards, currency notes or bank
notes of lower value or other coins which are legal tender should be supplied in quantities which
are required for circulation. If the Central Government at any time fails to supply such coins, the
Bank shall be released from its obligations to supply them to the public.

While soiled notes are notes which have become dirty and limp due to excessive use or a two-
piece note, mutilated note means a note of which a portion is missing or which is composed of
more than two pieces. While soiled notes can be tendered and exchanged at all bank branches,
mutilated notes are exchanged at designated bank branches and such notes can be exchanged for
value through an adjudication process which is governed by Reserve Bank of India (Note
Refund) Rules, 2009.
1.7. CURRENCY DEMAND IN INDIA
The Reserve Bank estimates the quantum of banknotes that needs to be printed, based on the
requirement for meeting the demand for banknotes based on various factors like inflation, GDP
growth, replacement of soiled banknotes and reserve stock requirements. Further, the Reserve
Bank also estimates the quantity of banknotes that are likely to be needed denomination-wise and
accordingly, places indents with the various printing presses. Banknotes received from banks and
currency chests are examined and those fit for circulation are reissued and the others (soiled and
mutilated) are destroyed so as to maintain the quality of banknotes in circulation.
Among the important determinants of the demand for currency, as we have seen above, the
following deserve special attention: (i) volume of transactions demand arising in the formal
economy; (ii) transactions demand arising from the underground economy; (iii) precautionary,
prudential and speculative demand; (iv) the type and pace of financial innovation and (v) use by
other countries.
1.8. CURRENCY CHEST MECHANISM
With only 19 regional offices and one sub-office at Kochi, RBI can’t discharge its obligation to
the general public for providing adequate supply of good quality of notes and coins. As such it
has entered into currency chest mechanism. The currency chests are extensions of Issue
Department at various places to meet the currency requirements of the public. When banks and
treasuries maintaining such chests need replenishment of their cash balances they draw upon the
currency chests for the purpose. Notes and rupee coins which are unfit or cannot be issued for
further circulation or are surplus to the requirements of the offices maintaining currency chests
are deposited into the chests. When sufficient quantities of non-issuable notes accumulate, they

are removed to an issue office. Currency chests thus obviate the necessity for frequent physical
remittances of currency and enable banks/treasuries to work with minimum cash balance of their
own. In currency chests, every day, banknotes and rupee coins are deposited and withdrawn to
meet the currency requirements of the branch. Every deposit of bank notes into currency chest
reduces the liability of Issue Department, while every withdrawal pushes up its liability. Every
deposit of Rupee coins increases the assets of Issue Department and the withdrawals reduces its
assets. These transactions of withdrawals and deposits are called currency transfer transactions.
The minimum amount of such transactions is to be done in multiples of ` 50,000 with a
minimum of ` 1, 00,000/-.
In terms of Section 33 of RBI Act, the Issue Department should hold assets not less than its
liability i.e. the notes in circulation. When currency transfer transactions take place the
equilibrium of assets and liabilities get tilted. When there is an increase in liability of Issue
Department due to withdrawal of bank notes at currency chests, this is offset by transfer of
equivalent amount of bank notes from Banking Department (part of public) to Issue Department.
On the other hand if there is a deposit of bank notes into the currency chests, the liabilities are
reduced, which is offset by transfer of bank notes from Issue Department to Banking
Department. In the case of deposits of rupee coins, the increase in assets is offset by transfer of
bank notes from Issue Department to Banking Department. These transfers from Issue
Department to Banking Department and vice versa in bank notes at headquarters of issue circle
to nullify the changes in equilibrium of assets/liabilities of Issue Department on account of
currency transfer transactions at currency chests in the circle are called opposite transfers. To
enable the Issue office to effect the opposite transfers, the currency chests shall report the
currency transfer transactions daily to their link office located in the headquarters of the Issue
Department. The link office will consolidate the transactions in respect of the currency chests in
its jurisdiction and submit the statement to Accounts Section daily. The banks not having any
currency chest at a place where Issue Office is located, shall have tie-up arrangement with
currency chest of other bank for deposit of cash to overcome the situation of adverse balance
whenever it arises.

FIGURE 1.1: FLOW OF NOTES AND COINS
The currency chests maintained by treasuries will either be withdrawn or converted into banking
currency chests. Till such time such currency chests function the treasuries shall report the
transactions directly by fax/telegram to the Accounts Section, which will prepare the
consolidated statement. In the case of net withdrawal by a bank, the current account of the bank
in banking department will be debited and cash will be transferred to Issue Department. In the
case of net deposits at currency chests, the opposite transfer will be from Issue Department to
Banking Department. The cash will be credited to the current account of the bank concerned.
The banking department also puts through transactions with commercial banks, government and
other institutions, payments to employees and under remittance facilities scheme. The net
receipt/payment will be made by banking department by deposit of surplus notes (over its
minimum cash balance) or withdrawal of bank notes from Issue Department. These cash
receipts/transfers in bank notes will again tilt the equilibrium of assets and liabilities of Issue
Department. Every banking department reports the daily withdrawal/transfer of bank notes to
Issue Dept. by telex/fax to DGBA where such daily reports from all offices are consolidated and

the position for the Bank as a whole is arrived at. If there is a net withdrawal from Issue
Department, the liability of Issue Department goes up. To balance the increase in liabilities,
eligible rupee securities or foreign securities will be transferred from banking department to
Issue Department. When there is a net transfer of surplus notes from banking department to Issue
Dept. there is a decrease in the liabilities of Issue Department and to balance the decrease in
liabilities corresponding assets will be transferred from Issue to banking department.
As per the RBI Section 23,
1.8.1. Issue Department – Liabilities
The liabilities of the Issue Department equal the currency notes issued by the Government of
India before the commencement of operations of the Reserve Bank on April 1, 1935 plus the
bank notes issued by the Reserve Bank since then, in terms of section 34(1) of the RBI Act.
1.8.2. Issue Department – Assets
In terms of the RBI Act, the eligible assets for the Issue Department comprise
 gold coin and bullion
 foreign securities
 rupee coin
 government securities
 Internal bills of exchange and other commercial paper.
“The issue of bank notes shall be conducted by the Bank in an Issue Department which shall
be separated and kept wholly distinct from the Banking Department, and the assets of the
Issue Department shall not be subject to any liability other than the liabilities of the Issue
Department.”

A part of the gold stock is recorded as a distinct item on the assets side of the Issue Department
balance sheet. The remaining stock of gold is reckoned as part of the assets of the Banking
Department and is shown under ‘Other Assets’ in the balance sheet of the Banking Department.
1.9. INTEGRATED COMPUTERISED CURRENCY OPERATIONS AND
MANAGEMENT SYSTEM (ICCOMS)
The Reserve Bank had taken up the task of putting in place an Integrated Computerised Currency
Operations and Management System (ICCOMS) comprising 3 components, viz., Currency
Chest Reporting System (CCRS), ICCOMS-Issue Department (ICCOMS-ID) and
Currency Management Information System (CMIS) in the central office, Issue Departments
in regional offices and currency chests maintained by various banks.
Main objectives if ICCOMS project
Improve Operational Efficiency
Faster and Accurate Accounting
Improve MIS and Planning
Better Monitoring and Control
Better Customer Service
The project includes computerisation and networking of the currency chests with the Reserve
Bank’s Issue offices to facilitate prompt, efficient and error-free reporting and accounting of the
currency chest transactions and seamless flow of information between the Issue Departments and
the Central Office in a secure manner with proactive monitoring.
The ‘live-run’ of CCRS component under Integrated Computerised Currency Operations and
Management System (ICCOMS), which commenced last year, has since stabilized and enabled
the Reserve Bank to account for currency transfer transactions efficiently. Under the second
component, viz., ICCOMS-ID, transactions are put through by all the 19 offices of the Reserve
Bank on a ‘straight through put’ process. As part of CMIS, which became operational during the
year, the data replicated from all the Issue Offices has enabled the Reserve Bank to identify stock
of banknotes and coins, accumulation and disposal of soiled notes, consumption of fresh notes

and reissuables and coins at all the Issue Offices and monitor notes in circulation at any point of
time on an all-India basis.
1.9.1. SCOPE OF ICCOMS
Planning for Currency Issue
Allocation and Distribution of Currency
Monitoring of Currency Stock, Distribution, Processing, Accumulation, Forgeries,
Reconciliation of Accounts etc.
Performance and Exception Monitoring
Infrastructure Planning
Dissemination of data on currency in circulation on an ongoing basis.
1.10. ISO CERTIFICATION IN CURRENCY MANAGEMENT
The Reserve Bank of India has received ISO 9001-2000 Certification for two of its important
departments, namely, currency management and banking.
ISO 9001-2000 Standard are generic management standards providing an internationally
accepted framework for establishing quality management systems with customer focus as the key
element. These standards also provide for an inbuilt mechanism for effecting continual
improvements in the system. Certification under these standards demonstrates that the
management system of the organization conforms to the specified requirements, is capable of
consistently achieving the stated service policy and ensuring its effective implementation.
In Jammu Office, The Issue department is ISO 9001-2000 certified and it is regularly audited to
ensure the level of Certification. The certification review is undertaken by a designated ISO
auditor once a year. Also, in order to maintain this certification, regular internal checks/audits are
conducted to ensure the quality of services rendered through the department to its customers.
In order to be more customer centric the department has made a Citizen’s Charter and is
committed to strictly adhere to it for providing superior customer service.

1.10.1. SCOPE
Ensure standardization of printed notes
Supply of notes to currency chests
Maintain quality of notes in circulation
Process of withdrawal of soiled notes
Disposal of soiled notes
Exchange of notes and coins
Adjudication of mutilated notes
Monitor and control circulation of counterfeit notes
1.11. NOTE REFUND RULES
As per the Section 28, “Notwithstanding anything contained in any enactment or rule of law to
the contrary, no person shall of right be entitled to recover from the Central Government or the
Bank, the value of any lost, stolen, mutilated or imperfect currency note, provided that the Bank
may, with the previous sanction of the Central Government, prescribe the circumstances in and
the conditions and limitations subject to which the value of such currency notes or bank notes
may be refunded as of grace and the rules made under this proviso shall be laid on the table of
Parliament.”
Mutilated notes- (1) The adjudication of claims in respect of notes of one rupee, two rupee, five
rupee, ten rupee and twenty rupees denomination shall be made in the following manner,
namely,
If the area of the single largest undivided piece of the note presented is more than 50
percent of the area of the respective denomination, rounded off to the next complete
square centimetre, full value on mutilated notes of the above denominations shall be
payable;
If the area of the largest undivided piece of the note presented is less than or equal to 50
percent of the area of the note, the claim shall be rejected.
(2) The payment of claim in respect of note of rupees fifty and above denominations shall be
made in the following manner, namely-

Full value of the mutilated notes of the above denominations shall be payable if the area
of the single largest undivided piece of the note presented is more than 65 percent of the
area of the respective denomination rounded off to the next complete square centimeter;
If the undivided area of the single largest undivided piece of the note presented is equal to
or more than 40 percent and less than or equal to 65 percent of the area of the respective
denomination rounded off to the next complete square centimeter, half the value of the
note is payable.
If the area of the single largest undivided piece of the note is less than 40 percent, no
value shall be payable, and the claim shall be rejected.
FIGURE 1.2: SCALE FOR ADJUDICATION OF MUTILATED NOTES
If the claim of mutilated notes of rupees fifty to rupees one thousand denomination notes
consists of a note composed of two pieces of the same note and the two pieces,
individually, have an area equal to or more than 40 percent of the total area of the note in
that denomination, then the claim may be refunded for full value and need not be treated
as consisting of two tenders for half value.
Payment of claim in respect of mismatched note- The payment of claim in respect of a
mismatched note may be dealt with as follows, namely-

In case of notes up to rupees twenty denomination notes, the area of the larger of the two
pieces presented may be measured and adjudicated
If none of the two pieces presented meets the minimum area stipulated the claim shall be
rejected.
In case of rupees fifty and above denominations, the two pieces may be treated as two
separate claims and dealt with accordingly.
The details regarding Note Refund Rules are given in the Annex-I.

CURRENCY IN CIRCULATION IN INDIA:
BROAD COMPARISON WITH OTHER ADVANCED COUNTRIES
-
2.1. CURRENCY IN CIRCULATION IN INDIA
The Coinage Act, 2011 was passed by the Parliament and became effective from March 28,
2012. It replaced the Coinage Act, 1906. The Act has re-defined the legal tender character of
coins as: (i) `1 and above – up to a sum of `1000, and (ii) 50 paise – up to a sum of `10. Besides
consolidating the laws relating to coinage and the Mints, the Act prohibits and imposes a penalty
on the melting or destruction of coins, unlawful making, and issue or possession of metal pieces
to be used as money. SPMCIL has four mints at Mumbai, Noida (UP), Kolkata and Hyderabad
for coin production.
There was a marked decline in the volume and value of small coins in circulation in 2011-12 as
coins of denomination of 25 paise and below ceased to be legal tender from June 30, 2011. The
supply of coins responded to the increase in demand from the public during 2011-12. The
demand was greater from the new sources of coin usage such as toll plazas, malls, Delhi Metro
Rail, etc. In the wake of increasing numbers of complaints from various trade bodies and
members of the public on unavailability of coins, the government has constituted a
Committee(Chairman: Dr. K.C. Chakrabarty, Deputy Governor, Reserve Bank) to examine the
issues relating to the increase in demand for coins and supply/ distribution bottlenecks. The total
value of currency in circulation was ` 10663 billion.
TABLE 2.1: BANKNOTES IN CIRCULATION(AS AT END MARCH 2012)
BANK NOTES IN CIRCULATION 2010 2011 2012
`2 & `5 7.953 11.116 11.54
`10 18.536 21.288 23.002
`20 2.341 3.02 3.51
`50 4.211 3.196 3.488
`100 13.836 14.024 14.119
`500 7.29 8.906 10.256
`1000 2.383 3.027 3.469
TOTAL 56.549 64.577 69.382
FIGURES ARE IN BILLION PIECES
CURRENCY IN CIRCULATION IN INDIA: BROAD COMPARISON WITH OTHER ADVANCED
COUNTRIES

TABLE 2.2: COINS IN CIRCULATION (AS AT END MARCH 2012)
COINS IN CIRCULATION 2010 2011 2012
SMALL COIN 54.738 54.797 14.785
`1 29.461 32.675 34.414
`2 13.198 15.342 18.201
`5 7.76 9.07 9.981
`10 0.149 0.3 0.648
TOTAL 105.306 112.184 78.029
FIGURE 2.1: CURRENCY IN CIRCULATION IN INDIA(IN BILLION PIECES)
2.2. CURRENCY IN CIRCULATION IN USA
As the nation's central bank, the Federal Reserve issues and processes Federal Reserve notes.
The Federal Reserve also distributes coin through depository institutions. The thirty Federal
Reserve Bank cash offices provide cash services to approximately 9,200 banks, savings and
loans, and credit unions in the United States. The remaining depository institutions obtain
currency and coin from correspondent banks rather than directly from the Federal Reserve.
130
135
140
145
150
155
160
165
170
175
180
2010 2011 2012
161.855
176.761
147.411
TOTAL CURRENCY IN CIRCULATION

The amount of currency in circulation depends on the public's demand for currency. Domestic
demand largely results from the use of currency in transactions and is influenced primarily by
prices for goods and services, income levels, and the availability of alternative payment methods.
Domestic demand for currency, however, accounts for only part of the total demand. Foreign
demand is influenced primarily by the political and economic uncertainties associated with
certain foreign currencies. Recent estimates show that between one-half and two-thirds of the
value of U.S. currency in circulation is held abroad. Some residents of foreign countries hold
dollars as a store of value, while others use it as a medium of exchange. Figures in the table
below represent the volume of currency in circulation in billions for the three years 2010-2012.
As shown the currency in circulation has decreased over the successive years.
TABLE 2.3: CURRENCY IN CIRCULATION (AS AT END DECEMBER 2012)
$1 $2 $5 $10 $20 $50 $100 $500-
$10000
TOTAL
2010 10.3 1 2.4 1.8 7.4 1.5 8.6 0.0005 33
2011 10 0.9 2.4 1.7 7.1 1.4 7.8 0.0005 31.3
2012 9.7 0.9 2.3 1.7 6.5 1.3 7 0.0005 29.5
FIGURE 2.2: CURRENCY IN CIRCULATION IN USA(IN BILLION PIECES)
27
28
29
30
31
32
33
2010 2011 2012
33
31.3
29.5
CURRENCY IN CIRCULATION (IN BILLION)

2.3. CURRRENCY IN CIRCULATION IN AUSTRALIA
The Reserve Bank is responsible for ensuring that there are sufficient high-quality banknotes in
circulation to meet the public's demand. This demand stems from the role of banknotes as a
payment mechanism and a store of wealth. To ensure that the public retains confidence in the
capacity of banknotes to perform these roles, the Bank:
 ensures that sufficient banknotes are printed to meet public demand;
 maintains the quality of banknotes in circulation by withdrawing old, used banknotes and
replacing them with new banknotes; and
 conducts research to ensure that the currency remains secure against counterfeiting.
At the end of June 2012 there were around 1.1 billion banknotes worth $53.6 billion on issue.
The $50 and $100 banknotes continue to account for the majority of banknotes on issue, with a
combined share of 91 per cent of the value and 65 per cent of the number of banknotes in
circulation.
The value of banknotes on issue increased by 7.1 per cent in 2011/12. Following sharp growth in
demand for banknotes immediately after the global financial crisis, and subdued growth in the
ensuing two years, growth in banknote demand over the past year has returned to levels
consistent with that experienced in the years leading up to the financial crisis.
TABLE 2.4 : CURRENCY IN CIRCULATION
At end
June
$5 $10 $20 $50 $100 Total
2009 128.8 95.4 133 474 201 1,032
2010 134.6 98.3 133 474 207 1,047
2011 146.2 101 140 486 212 1,085
2012 147.4 106 149 513 232 1,147

FIGURE 2.3: CURRENCY IN CIRCULATION IN AUSTRALIA (IN BILLION PIECES)
2.4. CURRRENCY IN CIRCULATION IN BRAZIL
The currency in Brazillian currency Real(R$) issued during the periods from 2008-2011 have
been shown in the tables below. The data for the FY 2012 is not yet available. The banknotes
issued during the FY 2011 are 5.01 billion pieces which is valued at R$158.42 billions. The
coins issued for the same period sums to 18.8 billion pieces which is valued at R$ 4.35 billions.
The total currency in circulation has been shown in the graph which has increased over the
consecutive years (being 23.8 bn pieces in 2011).
TABLE 2.5: BANKNOTES IN CIRCULATION
TOTAL BANKNOTES 2008 2009 2010 2011
BRL 100 0.19638 0.2923 0.40614 0.48577
BRL 50 1.42522 1.52264 1.63264 1.68252
BRL 20 0.55645 0.62405 0.6953 0.7428
BRL 10 0.7209 0.6965 0.7313 0.6839
BRL 5 0.3894 0.4146 0.4252 0.4474
BRL 2 0.6725 0.721 0.7695 0.816
BRL 1 0.194 0.162 0.153 0.151
TOTAL BANKNOTES ISSUED 4.15485 4.43309 4.81308 5.00939
950
1,000
1,050
1,100
1,150
2 0 0 9
2 0 1 0
2 0 1 1
2 0 1 2
1,032 1,047
1,085
1,147
CURRENCY IN CIRCULATION (IN MILLIONS)

TABLE 2.6: COINS IN CIRCULATION
TOTAL COINS 2008 2009 2010 2011
BRL 1 1.279 1.576 1.842 2.113
BRL 0.50 1.31 1.534 1.728 1.926
BRL 0.25 1.5 1.68 1.9 2.092
BRL 0.10 3.65 4.02 4.46 4.96
BRL 0.05 3.22 3.6 4.04 4.5
BRL 0.01 3.2 3.2 3.2 3.2
Commemorative Coin 0.001 0.001 0.001 0.001
TOTAL COIN ISSUED 14.16 15.611 17.171 18.792
FIGURE 2.4: CURRENCY IN CIRCULATION IN BRAZIL(IN BILLION PIECES)
0
5
10
15
20
25
2008 2009 2010 2011
18.31485
20.04409
21.98408
23.80139
CURRENCY IN CIRCULATION (BILLIONS)

2.5. CURRENCY IN CIRCULATION IN CHINA
The currency in Brazillian currency Renminbi(¥) issued during the periods from 2008-2009 have
been shown in the tables below. The data for the FY 2010 and 2011are not yet available. The
banknotes issued during the FY 2009 are 202.7 billion pieces which is valued at ¥4096.13
billions. The coins issued for the same period sums to 187.2 billion pieces which is valued at ¥
45.8 billions. The total currency in circulation has been shown in the graph which has increased
over the consecutive years (being 389.8 bn pieces in 2009). However the data for the year 2010
and 2011 is not yet available.
TABLE 2.7: BANK NOTES IN CIRCULATION
TOTAL BANK NOTES 2008 2009 2010 2011
CNY 100 32.6792 36.6626 NAV NAV
CNY 50 2.51 2.8764 NAV NAV
CNY 20 2.7555 3.1515 NAV NAV
CNY 10 11.078 11.892 NAV NAV
CNY 5 10.388 10.794 NAV NAV
CNY 2 1.98 1.965 NAV NAV
CNY 1 29.7 32.89 NAV NAV
CNY 0.5 12.1 13.72 NAV NAV
CNY 0.2 10.9 10.75 NAV NAV
CNY 0.1 30.2 36.8 NAV NAV
CNY 0.05 3.2 3.2 NAV NAV
CNY 0.02 9 9 NAV NAV
TOTAL 185.4907 202.7015 NAV NAV
TOTAL COIN 2008 2009 2010 2011
CNY 1 25.34 28.36 NAV NAV
CNY 0.5 16.98 19.1 NAV NAV
CNY 0.1 58.4 63.3 NAV NAV
CNY 0.05 13.2 13.4 NAV NAV
TOTAL 175.92 187.16 NAV NAV

FIGURE 2.4: CURRENCY IN CIRCULATION IN CHINA(IN BILLION PIECES)
2.6. CURRENCY IN CIRCULATION IN SOUTH AFRICA
The Government has given the South African Reserve Bank the sole right to issue banknotes and
coin in the country. The Bank must ensure that sufficient new banknotes and coin are available
to replace banknotes, which are removed from circulation due to soil levels.The Bank calculates
the country’s new banknote and coin requirements on an annual basis.
As shown in the table, the bank notes in circulation in the FY 2011 was 1720.05 million pieces
which is valued at R 110.03 bn. The coins issued for the same period sum to 1082.4 million
pieces which is valued at R 303 mn. The currency in circulation in billions for the four years is
shown in the graph.
2008 2009 2010 2011
361.4107
389.8615
0 0
CURRENCY IN CIRCULATION(BILLIONS)

TABLE 2.9: BANK NOTES IN CIRCULATION
NOTES 2008 2009 2010 2011
ZAR 200 178.015 11.305 77.56 69.3
ZAR 100 690.69 1115.09 1145.73 753.92
ZAR 50 466.88 430.94 272.12 215.18
ZAR 20 568.4 455 377.55 320.65
ZAR 10 481.9 444.9 459.7 361
TOTAL 2385.885 2457.235 2332.66 1720.05
FIGURES ARE IN MILLION PIECES
TOTAL COINS 2008 2009 2010 2011
ZAR 5 14.2 17.4 14.2 19.4
ZAR 2 26.5 31 32 40
ZAR 1 57 33 61 36
ZAR .50 38 40 46 32
ZAR .20 115 85 70 95
ZAR .10 220 220 180 240
ZAR .05 700 660 620 620
TOTAL 1170.7 1086.4 1023.2 1082.4
FIGURE 2.6: CURRENCY IN CIRCULATION IN SOUTH AFRICA(IN BILLION PIECES)
0
0.5
1
1.5
2
2.5
3
3.5
4
2008 2009 2010 2011
TOTAL CURRENCY IN
CIRCULATION(IN BILLIONS)
3.556585 3.543635 3.35586 2.80245
TOTAL CURRENCY IN CIRCULATION(IN
BILLIONS)

2.7. COMPARISON AND CONCLUSION
TABLE 2.11: BASIC STATISTICAL DATA
Country GDP (in USD Billions) Population (in Millions) GDP Per Capita USD
2009 2010 2011 2009 2010 2011 2009 2010 2011
1. India 1334 1678 1908 1170 1186 1202 1140 1415 1585
2. China 4412 5790 7298 1331.4 1337.2 1343.5 3689 4330 5432
3. South Africa 284 363 409 490.6 50.1 50.6 5727 7250 8072
4. U.S.A. 13974 14499 15076 306.8 309.4 311.6 45551 46869 48383
5. Australia 999 1246 1500 21.8 22.1 22.4 45,809 56371 67041
6. Brazil 1625 2143 2474 191.5 193.3 194.9 8486 11089 12692
TABLE 2.12: CURRENCY IN CIRCULATION
2008 2009 2010 2011 2012
USA NAV NAV 33 31.3 29.5
AUSTRALIA NAV 1.032 1.047 1.085 1.147
BRAZIL 18.31485 20.04409 21.98408 23.80139 NAV
SOUTH AFRICA 3.556585 3.543635 3.35586 2.80245 NAV
CHINA 361.4107 389.8615 NAV NAV NAV
INDIA NAV NAV 161.855 176.761 147.411

After going through the currency in circulation of all the countries and comparing it with the
staistics of India, we find that all the countries were much behind in terms of their money
circulation. But this is not something of which we should feel proud of. The expenditure incurred
on security printing charges in 2011-12 (July-June) increased by `3.3 billion (13.8 per cent)
mainly on account of an increase in the supply of banknotes compared to the previous year.
Expenditure on remittance of treasure has increased from `455 million in 2010-11 (July– June)
to `528 million in 2011-12 mainly due to the increased supply of banknotes/coins to the currency
chests.
FIGURE 2.7: COST OF SECURITY PRINTING (` BILLIONS)
The high currency in circulation in India is is mainly on account of low usage for plastic money
(credit cards) and people being resistant to opt for internet banking and avoiding e-transactions.
The currency in circulation increases at 10 per cent annually and so does it’s printing cost. Thus
an alternative needs to be implemented so that the currency in circulation in India in comparison
to other advanced countries comes down.

FIGURE 2.8: CURRENCY IN CIRCULATION (IN BILLION PIECES)
0
50
100
150
200
250
300
350
400
USA AUSTRALIA BRAZIL SOUTH
AFRICA
CHINA INDIA
CURRENCY IN CIRCULATION(BILLIONS)
2008 2009 2010 2011 2012

CURRENCY IN CIRCULATION IN JAMMU AND KASHMIR
As on March 31, 2012, 69382 million pieces of banknotes valuing ` 1052800 crore and 78000
million pieces of coins valuing ` 13500 crore were in circulation as against 64577 million pieces
of banknotes valuing ` 935800 crore and 1.12 lakh million pieces of coins valuing ` 12700
crore as of March 31, 2011 recording an increase of 7.5 % (quantity), 12.5 % (value) for notes
and decline in 30% (quantity) and increase of 6% (value) for coins. The marked decline in the
volume of coins by 30% was attributed to small coins up to 25 paisa which ceased to be legal
tender from June 30, 2011 (40 million pieces). In value terms higher denomination notes i.e. `
100, ` 500 and ` 1000 denominations account for 95% (13%, 48.7% and 32.9%) as on March
31, 2012 as against 95% (15%, 47.5% and 32.5%) as on March 31, 2011. In quantity terms high
denomination notes accounted for 40% (20%, 15% and 5%) as on March 31, 2012 as against
40% (21.5%, 14% and 4.5%) as on March 31, 2011. However, small denomination notes formed
60 % each in quantity and 5% each in value of the total notes in circulation as on 31.03.2011 and
31.03.2012 respectively. The share of ` 10 and up to ` 5 notes in circulation as on 31.03.2012

was 32% and 16% respectively. The ratio of currency with public to GDP comes to about 12-
13%. Incidentally the notes in circulation in 1935 when RBI was established were 124 million
pieces valuing `186 crore, increased to ` 1181 crore on 15.08.1947 and the same stood at about
64.6 billion pieces valuing ` 935856 crore as on March 31, 2011 and 69.4 billion pieces valuing
` 1052800 crore (10528 billion) as on 31.03.2012. As on May 3, 2013 total currency in
circulation at ` 12143 billion recorded an increase of 10.2% on year to year basis.
In the state of J & K, RBI supplied 302 million pieces valuing ` 6100
crores and 297 million pieces valuing ` 7256 crore during 2011-12 and 2012-13 respectively.
Besides coins valuing over ` 18.73 crore (68 million pieces) and ` 24.99 crore (78 million
pieces) were supplied during the above years respectively. Notes in circulation in the state as on
March 31, 2013 were ` 41362 crore (2578 million pieces) as against ` 37750 crore (1906
million pieces) as on the same date last year.

TABLE 3.1: DENOMINATION WISE CIRCULATION OF NOTES FOR MAY 2013
` 2 ` 5 ` 10 ` 20 ` 50 ` 100 `500 `1000
TOTAL
PIECES(in
millions)
TOTAL
VALUE(in`
billions)
A. CURRENCY 1015
526
-
2461
7656
-
12799
1917
-
68799
955
-
97814
607
-
15141
08149
-
31936
1495
-
16072
6533
-2312.404786 -479.4858012
B.
1. NOTE STOCK 2620
000
59400
00
15810
000
10060
000
50032
00
83890
00
10051
400
102.9024 201.4108
2. EXCHANGE
NOTES
80 1070
0
23418 4774 719 49659
8
35029
6
20219
0
1.088615 0.42741695
3. CHEST NOTES 3500 1781
697
20814
700
18233
000
13839
290
36028
031
27528
925
60026
59
124.231802 24.64361159
4. INVOICED
NOTES
1600 4514
00
59556
50
38392
00
59556
50
26923
058
12009
948
23219
80
66.258636 11.5436445
5. GUARANTEE
NOTES*
- - - - - - - - - -
6. REISSUEABLE
NOTES
- 13000 7073 13000 34864
7
22319
2
93121 0.685212 0.24037475
7. DEFACED
REGISTERED
NOTES*
- - - - - - - - - -
8. DEFACED UN-
REGISTERED
NOTES*
- - - - - - - - - -
RETIRED NOTES* - - - - - - - - - -
TOTAL OF B 5020 4863
797
41534
097
37894
047
29868
659
11382
8334
48501
361
18671
350
295.166665 56.99584779
CIRCULATION
NOTES(PIECES)(A-
B)
1010
506
-
2948
1453
-
16952
6014
-
10669
4002
-
12768
3266
-
16279
36483
-
36786
2856
-
17939
7883
-2607.571451 -536.481649
CIRCULATION
NOTES(VALUE)
-
1007
845
1956
4838
99923
251
26300
436
67877
980
13921
15724
25153
7624
13386
7908
1990.179916 403.8632411

FUNCTIONS OF ISSUE DEPARTMENT
The Department of Currency Management (DCM) of the Reserve Bank located at Central Office,
Mumbai, takes policy decisions on the designs of bank notes, forecasts the demand for notes and
coins, ensures the smooth distribution of bank notes and coins throughout the country, arranges
to withdraw unfit notes, administers the RBI Note Refund Rules and reviews/rationalizes the
work systems/procedures at the Issue Offices on an ongoing basis. While policy formulation and
data monitoring is carried out in the Department of Currency Management, operational work is
conducted by the Issue Departments of the Bank currently located in 18 centers with
responsibility for managing the inventory, distribution and servicing of currency in its respective
issue circles.
4.1. CASH DEPARTMENT
Cash Department forms part of Issue Department and is responsible for the physical receipt, safe
custody and distribution of currency notes, coins and gold. This Department also attends to the
work of ensuring quality of notes in circulation.
The main functions of Cash Department are:
1. Keeping safe custody of all balances of gold held on Bank's account and Government
account as also fresh, re-issuable and non-issuable notes and coins.
2. Receipt of fresh notes and coins from the printing press or the mints against indents
placed with them by Central Office.
3. Supply of notes and coins to currency chests in accordance with the programme of
remittances drawn up by the Resource Section.
4. Supply of notes and coins to Banking Department and the acceptance of notes and coins
from the Department.
5. Provision of exchange facilities to the public including banks, Government bodies etc.
with prompt.
6. Examination of notes and coins, destruction of non-issuable notes and remittance of
incurrent and withdrawn coins to mints.
7. Providing service according to the extant standards and benchmarks.

4.2. PROCESSING AND DISPOSAL OF NOTES
The Bank’s clean note policy makes it incumbent on it to ensure good quality of notes in
circulation. In terms of Section 27 of the RBI Act 1934, the Bank cannot reissue torn, defaced or
excessively soiled notes. To maintain the quality of notes in circulation, fresh note are supplied
to currency chests and soiled notes accumulated at currency chests are periodically withdrawn by
arranging remittances to the Bank. Soiled notes so received from the currency chests used to be
examined manually in the NES. In terms of the current policy such soiled notes are currently
processed/sorted by mechanized processing through Currency Verification and Processing
Systems (CVPS).
4.2.1. Mechanized processing through Currency Verification and Processing System
(CVPS)
The Currency Verification and Processing System (CVPS) has been designed for mechanized
on-line examination, authentication, counting, sorting and destruction of notes received at the
Bank. Such notes may be non-issuable notes received from currency chests, notes received under
guarantee, bulk local tenders or notes received over the counters in exchange. The CVPS
performs the functions of the note examination sections, verifications sections and retired note
vault simultaneously on an on-line basis.
The notes fed into the CVPS are sorted into four categories: fit (reissuable) notes, unfit (non-
issuable) notes, reject and suspect notes. Notes classified as reject by the CVPS will include
defective notes of different types, „doubles‟ (two or more notes stuck together), notes of a
different denomination than the one being processed etc. The notes `suspect' will include
suspected forgeries not recognized by CVPs, etc. The notes classified as non-issuable will be
destroyed on-line under the operations of the CVPS. The CVPS will give a count of reissuable,
suspect as well as destroyed notes. The reject notes will have to be separately examined and
counted by manual process.
Reconciliation of the notes is effected by totaling the reissuable, suspect and destroyed counts
given by the CVPS and feeding the number of manually counted reject notes. All the operations
will be captured in the computers of the systems and will also yield on-line printouts. The

mechanical details etc. of the CVPS are provided in the CVPS operator and supervisor manuals
which all the officers and operators should become familiar with. The different modes of running
the CVPS machine for processing the notes will be based on Central Office instructions and
decided in consultation with GM/DGM.
4.3. RESOURCE SECTION
The Resource Section shall attend to the following functions:
1. Permit opening, closing, and shifting of currency chests and small coin depots.
2. Programme remittances of fresh notes and coins to other Issue Offices, currency chests
and small coin depots, remittances of soiled notes from chests to Reserve Bank and issue
inter chest diversion orders.
3. Supply draft and other remittance forms, cypher code, treasury agencies private check
signal book and certain other essential documents and forms to the currency chests.
4. Issue operational instructions to controlling offices of banks, officers in charge of
currency chests and small coin depots on matters relating to currency and coinage.
5. Administer Bank’s remittance facilities scheme.
6. Conduct inspection of currency chests, monitor verification of chest balances, etc.
7. Arrange meetings of State Level Security Committee and Standing Committee on
Currency Management.
4.4. REMITTANCE SECTION
The Remittance Section works in close co-ordination with Resource Section to effect the
movement of currency notes and coins to other offices of the Bank, currency chests and small
coin depots within the Circle and for receipt of all inward remittances. The Section will function
under the charge of an Assistant Manager. He shall ensure that the work in the Section is carried
out in accordance with the instructions contained in this Manual, besides the relative provisions
in the Central Government Compilation of Treasury Rules, the Railway Coaching Tariff and the

Bank's administrative instructions. To facilitate movement of treasure, the Section will carry out
the following functions:
1. Liaising and making arrangements with railways/transport operators /container service
providers/ air/shipping agencies etc., for inward and outward remittance of treasure.
2. Arranging with the State police for escorts to accompany remittance of treasure and
settling the bills submitted by them in this regard.
3. Entering into annual contracts with local firms for providing laborers and transport for
handling of note boxes/coin bags and settling their bills.
4. Providing remittance boxes, note cases etc. for packing of remittances by currency chests.
5. Grant of advances to the Bank’s representatives accompanying remittances and for
settling the traveling allowance bills submitted by them.
6. Administering the guarantee scheme.
7. Processing the applications made by banks through link offices, treasury agencies
through AGs and railways and police escort for reimbursement of expenditure incurred
by them on remittance operations.
8. Settling of claims for reimbursement of railway freight/shunting charges and TA/DA of
accompanying Press representatives for receipt of fresh notes from Presses.
4.5. ACCOUNTS SECTION
The accounting system of the Issue Department has been designed in such a manner that all
receipts and issues of notes and coins and each stage of their handling or storage are accounted
for under various accounting heads. The credit balances on account of receipts of notes and coins
shall be agreed and reconciled with the debit balances under the detailed heads. The Bank is
required in terms of Section 53 (1), to prepare and submit to the Central Government its weekly
accounts. Keeping this statutory requirement in view, the Accounts Section of Issue Department
maintains the books of accounts and generally attends to the following functions –

1. Maintenance of the internal accounts of the Bank in respect of bank notes and coins.
2. Accounting of and responding to currency transfer transactions reported by currency
chests maintained by banks through their link offices and those reported directly by the
Government treasury offices.
3. Accounting of transactions in respect of remittances between Issue Offices and currency
chests including inter-chest and inter-circle remittances.
4. Preparation of weekly abstracts of circulation notes account and rupee coin account.
5. Reconciliation of the balances held in currency chests as per prescribed periodicity.
6. Verification of periodical balance confirmation certificates submitted by currency chests.
7. Monitoring reporting of currency transfer and remittance transactions by currency chests
and charging penal interest for delayed/wrong reporting of currency transfer transactions,
shortage/misappropriation of chest balances and other such irregularities.
8. Annual closing of Bank’s accounts relating to Issue Department.
4.6.RECORD SECTION
The Records Section attends to maintenance, preservation and destruction of records, besides
maintaining the Cash Department stores. It will arrange for purchase of stores required by Cash
Department annually within the budget provision.
The functions of the section include -
1. Receipt and dispatch of letters pertaining to Issue Department.
2. Maintenance of record room of Issue Department, library books, bullion van other dead
stock and payment of insurance premium.
3. Matters connected with Police Guards.
4. Purchase and maintenance of note counting/bundling machines, CCTV and all other
machines required for Cash Department and Cash Department stores.
5. Procurement of stationery items for Issue Department.
6. Awarding service contracts for maintenance of vault doors/bins, note counting/bundling
machines, CCTV and other machines.

7. Disposal of unserviceable items viz. broken wooden boxes, gunny bags, steel strips, note
briquettes, etc.
8. Maintaining petty cash.
9. Other miscellaneous work - payment of telephone bills, newspaper bills/courier bills for
office use.
10. Reimbursement of telephone charges, cost of brief case etc. cost for Issue and Cash
Department Officers.

CURRENCY MANAGEMENT: WAY FORWARD
The future of currency management needs a series of steps and innovations to be incorporated so
as to make it efficient with optimum use of resources and information technology. Some key
points in this regard are discussed below:
5.1. VOLUME OF NOTES IN CIRCULATION
In order to promote the use of plastic money in India, it is very important that the volume of
notes in circulation be contained within a limit and reduced substantially. Then only Indian
economy can shift to non-cash instruments.
5.2. COIN CIRCULATION
Many a times it happens that shopkeepers are out of change and offer sweets in return and
consumers also don’t bother to ask for change. This clearly shows that still there is a shortage of
supply of coins in the market though 78 billion pieces were supplied in 2012. The increasing
demand of coins and their lack of shortage results in the origins of black market dealers. So order
to meet the growing demands of coins, coin dispenser machines should be installed in banks for
customers for easy availability. Also new ATMs installed should have a built in function to
disburse coins along with cash.
5.3. REVIEW OF SECURITY FEATURES
Security features of the notes should be enhanced and modernized in such a way that their
duplication is impossible. However the security features should be updated timely so that
genuine notes stays ahead of the counterfeit notes. New technological innovations should be
implemented in case of security features.
5.4.CONCEPT OF HUBS
Apart from currency chests, there should be potential hubs for supplying banknotes and coins at
key locations so that the banks are able to meet their cash requirements from these hubs apart
from currency chest branches which a fixed limit of banknotes and coins. This will also reduce
the cost of transportation involved in the transfer of treasure.

5.5. PROXIMITY AND LOGISTICS
Statistical tools like least cost method (LCM), Voyle’s approximation method should be used so
as to determine the optimum transportation routes for movement of treasure from presses and
mints to RBI and from RBI to currency chest. This will not only reduce the cost of
transportation, but will also set most logical route for transferring treasure.
5.6. DIRECT REMITTANCES FROM THE PRESSES
The notes and coins from the presses and mints are supplied to RBI Offices which are then
supplied to currency chests and public. However if the remittances are directly transferred from
the presses/mints to the currency chests then the four step verification can be reduced to only two
step verification, one at the press/mint and the other at the respective currency chest. RBI can
perform the role of supervisor in this case with conducting regular inspections.
5.7. POLYMER NOTES
Cost and longevity are important issues in currency management. After due consideration, and in
consultation with the Government, the Reserve Bank has decided to introduce one billion pieces
of `10 banknotes on polymer substrate on a field trial basis in a limited launch in five cities.
While cleanliness and durability are seen as the major advantages of polymer, the carbon
footprint associated with production, use and disposal of polymer notes is an important issue.
Available information indicates that polymer banknotes (and the waste from production) can be
granulated and recycled into useful plastic products such as compost bins, plumbing fittings and
other household and industrial products. Considering the relatively longer life of polymer notes
and their amenability to re-cycling, the “carbon footprint” of polymer notes vis-à-vis paper
banknotes is likely to be on the plus side.
5.8. CLEAN NOTE POLICY
All the banks who are not adhering to the RBI’s clean note policy should be strictly penalized.

SURVEY
6.1. RESEARCH DESIGN
Research design is a controlling plan for a marketing research study in which the methods and
procedures for collecting and analyzing the information to be collected is specified. The research
undertaken was exploratory in nature as it was a first step in a research process. It focused on
the discovery of ideas and was generally based on secondary data.
Universe: It refers to the total of items or units in any field of survey or inquiry. All the people
who are insured constitute the universe of my survey.
Sample unit: Jammu city is the sample unit.
Sample size: Sample size refers to the total number of items about which the information is
desired.
Sampling technique: The convenient technique was used to collect the data.
Tools of analysis: The data collected has been analyzed by means of pie charts, bar charts and
column charts using simple mathematical calculations for the accuracy of the search.
6.2. METHODS OF DATA COLLECTION
1. Primary Data:
Primary data is defined as the first time data collected. It is new in nature. This type of data is
collected directly from the source of information. The techniques, which are involved in
collecting the primary data, are personal interview, surveys, questionnaire etc. In my report I
have collected data by personal interview and questionnaire.
2. Secondary Data:
Secondary data is that type data which somebody else had collected and which had already been
passed through the statically process. This indirect information of the data from sources
containing past and present information is collected from newspapers, journals, business
SURVEY – “The level of awareness about the security features of bank notes and the
impact of RBI’s currency exchange facility”.

SURVEY
manuals, pamphlets magazines etc. In my report I have also collected information from annual
reports and newspapers.
6.3. DEVELOPING THE RESAERCH PLAN
Sampling Plan:
Sampling can be defined as the section some part of an aggregate or totality on the basis of
which judgment or an inference about aggregate or totality is made. The sampling plan helps in
decision making.
The second stage of this study consists of developing the most efficient plan for gathering the
relevant data. The methods for carrying out study are as following:
Research Plan:
Research Approach that was employed in this particular exercise was survey method.
Primary Source:
Primary data consists of original information gathered for specific purpose. The primary data is
collected through questionnaire. The questionnaire is through common instrument collecting
primary collection. We collected the data through questionnaire from different people including
patients, their attendants, hospital staff etc.
6.4. RESEARCH INSTRUMENT
The research instruments used for collecting the primary data were the questionnaire.
6.4.1. QUESTIONNAIRE
The questionnaire was carefully developed tested and debugged before they were administered
on a large scale. Each questions contributed to the research objective here questionnaire is
structured types means there are concrete, definite and predetermined questions. The questions
are presented are exactly same wording and in the same an order to all respondents. The
questionnaire had a mix type of open ended, closed ended and multiple choice questions.

SURVEY
The questions were limited in numbers simple direct and unbiased technology was adopted.
Two sets of questionnaire were prepared, one for the general customers and other specifically
for the employees of the three banks.
A total of 19 questions were framed for the customers and six questions for the bankers.
The questionnaire was designed in such a way so as to get a response which was critical to
the overall research.
The questions for the customers were deliberately split up into different sections so as to
avoid any confusion or sampling errors in the final statistical operations.
Overall frequency patterns of the respondents were also taken into account so as to determine
the effectiveness of the service.
Responses to the security features of the note were asked and responses duly quantified.
Questions regarding overall experience were asked and the major contributing factor was
also put in and responses were given weightage.

SURVEY
SURVEY REPORT
The present report is an overview on the results of the survey that was carried out in the frame of
the project “CURRENCY MANAGEMENT: ISSUES AND CHALLENGES WITH
SPECIAL REFERNCE TO THE STATE OF J&K” on “The level of awareness about the
security features of bank notes and the impact of RBI’s currency exchange facility”.
The main aim of the survey was to study the impact of RBI’s counter closing, the level of
awareness about the security features of note and the money exchange facility of the three banks.
The survey also aimed at studying the awareness about the security features of note among the
bankers and the knowledge about the Note Refund Rules.

SURVEY
Respondent No.: _______
Name (Optional): _________________________ Age: 18-30 31-50 Above 50
Gender: Male Female Occupation: _______________
Directions for the Respondents: Tick Mark the Correct Option.
1. How often do you visit RBI for money exchange?
i. Daily
ii. 2-3 times a week
iii. Weekly
iv. Monthly
v. Quarterly
vi. Semi-annually
vii. Annually
viii. Never
2. Is the location convenient to you?
Yes No
3. Rate the RBI’s currency exchange function.
i. Excellent
ii. Good
iii. Fair
iv. Average
v. Poor
4. Are you aware of the banks providing currency exchange function?
Yes No
5. Do you visit any bank for money exchange?
Yes No
If yes state the bank ____________________________
QUESTIONNAIRE
(This questionnaire is aimed at collecting and analyzing information representing the level of awareness about the
security features of bank notes and the impact of RBI’s currency exchange facility for the public. Respondents have
been taken from Jammu City in Jammu and Kashmir State.)
Section A: Cash Counter Closing Impact
Section B: Commercial Banks Exchange Service

SURVEY
6. How often do you visit the commercial banks for money exchange?
i. Daily
ii. 2-3 times a week
iii. Weekly
iv. Monthly
v. Bi-monthly
vi. Quarterly
vii. Semi-annually
viii. Annually
ix. Never
7. Whether this facility is extended by the bank to the customers not having A/c in the
respective bank?
Yes No Can’t Say
8. Whether a dedicated counter has been set up to provide exchange facility?
Yes No
9. Whether cut/soiled/mutilated note exchange facility is available at the bank?
Yes No
10. Rate the money exchange facility extended by the commercial banks.
i. Excellent
ii. Good
iii. Fair
iv. Average
v. Poor
11. Do you think commercial Banks exchange function will be a good alternative?
Yes No Can’t Say
12. Are you aware of the RBIs “PAISA BOLTA HAI” campaign?
Yes No
13. Tick the security features of a note you usually notice for checking counterfeit notes.
i. Mahatma Gandhi Watermark
ii. Thickness of paper
iii. Security Thread
iv. Size
v. Number Panel
vi. Optically Variable Ink
vii. Intaglio printing
Section C: Awareness about security features of notes

SURVEY
viii. See through register
ix. Color of Note
x. Fluorescence
14. Which denomination of Coin you frequently use?
` 1 ` 2 ` 5 ` 10
15. Do you get adequate supply of the coins you ask for?
Yes No
16. Are you aware of plastic money?
Yes No
17. Do you think plastic money will replace cash in near future?
Yes No Can’t Say
18. What suggestions can you offer to promote use of plastic money?
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
19. Can you suggest any measures that the RBI can take to improve the Money Exchange Service
in India?
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
Section D: Miscellaneous

SURVEY
54%
31%
15%
AGE GROUP
A1(18-30) A2(31-50) A3(ABOVE 50)
97%
3%
GENDER
MALE FEMALE
6.5. DATA ANALYSIS
As shown in the questionnaire for customers, there are four sections namely:
6.5.1. Cash Counter Closing Impact
6.5.2. Commercial Banks Exchange Service
6.5.3. Awareness about security features of notes
6.5.4. Miscellaneous
6.5.1. CASH COUNTER CLOSING IMPACT
Out of the 150 sample size, the female respondents
constituted of only 3 per cent of the total sample
population. The reason for this is that only a few
women are involved in operating retail shops and thus
their strength is less in comparison to 97 per cent for
male candidates.
Similarly the sample population was divided in
three age groups which are shown in the figure.
A1 group corresponds to 18-30 class, A2
corresponds to 31-50 class and A3 corresponds to
above 50 class group. As shown A1 forms 54 per
cent of the total sample size, A2 31 per cent and
A3 15 per cent of the sample size.

SURVEY
69%
31%
CONVENIENCE OF
LOCATION
YES
NO
After conducting the survey with the customers, the part where they were asked about how often
they visit RBI’s cash counter it was found that mostly customers visited 2-3 times a week
followed by weekly and monthly. There were also customers who have never visited RBI. The
mere fact that they were getting coins from their nearby bank where they had their accounts.
Location was not an issue
for the respondents as majority of them
belongs to the Jammu city with 69 per cent
considering it to be convenient for their day
to day transactions. However people
belonging to the far flung areas had an issue
with the location which is currently located
centrally not easily accessible with 31 per
cent of the sample population considering it
to be inconvenient. This problem can be
overcome if banks at key locations be
imparted with such a facility.
14
37
27 26
9
1
9
25
FREQUENCY OF VISIT

SURVEY
The respondents were also asked to rate the RBI’s cash counter service which was found to be
have been low on performance during the last few months. The reason being the transition phase
as RBI might close its retail banking. However the response of the customers was good when it
comes to the service quality. On an average the service was rated 3.45 on a scale of one to five.
There were 16.7 per cent responses of the total sample who rated the service as Fair, 10.67 per
cent rated it to be average and 10 per cent said it was poor, probably because of inadequate
supply of coins.
6.5.2. COMMERCIAL BANKS EXCHANGE
SERVICE
The second section of the questionnaire was getting the
information on the level of awareness of the banks
providing coins and exchanging soiled/cut/mutilated note
exchange facility. There was lack of awareness among the
customers in this regard with 78 per cent being unaware
as shown in the pie-chart.
0 10 20 30 40 50
EXCELLENT
GOOD
FAIR
AVERAGE
POOR
EXCELLENT GOOD FAIR AVERAGE POOR
Series1 40 43 25 16 15
RBI's RATING
YES
22%
NO
78%
AWARENESS ABOUT
BANKS PROVIDING
MONEY ECHANGE
FACILITY

SURVEY
The customers were are also reluctant in visiting the
bank for the above mentioned functions probably
because of lack of awareness with only 24 per cent
of the sample population visiting the banks for the
above said function.
Of the 44 respondents who visit banks for the coins or exchanging soiled notes, eighteen of
them have never opted for such service few of them visited monthly followed by 2-3 times a
week, monthly, weekly and lowest for daily as they still consider RBI for such functions.
44 per cent of the customers who visit banks for the above
functions were of the view that the facility was not
extended to non-customers while only 27 per cent
believed that it was.
3
7
5
9
0 0
2
18
5
FREQUENCY OF VISIT TO BANKS
YES
24%
NO
76%
VISIT TO BANK
44%
27%
29%
FACILITY EXTENDED TO NON
CUSTOMERS
NO
YES
CAN'T SAY

SURVEY
The respondents were asked if commercial banks can replace RBI’s retail function and
satisfactorily handle it. About 58 per cent responded that it will be a good alternative as they can
access nearby banks for such functions. However 36 per cent respondents were not in favor of
commercial banks handling such functions as they considered banks to be discriminatory
between their customers and the walk-ins.
6.5.3. AWARENESS ABOUT SECURITY FEATURES
TABLE 6.1: SECURITY FEATURES
Detected without aid of
device
Detected with aid of device
 Watermark
 Security Thread
 Intaglio
 Perfect Register
 Identification Mark
 Optically variable Ink
 Latent Image
 Micro lettering
 Fluorescence
 Optical Fibres
YES
29%
NO
71%
DEDICATED COUNTER
YES NO
51%49%
CUT/MUTILATED/SOILED
NOTE EXCHANGE FACILITY
YES NO
58%
36%
6%
IS COMMERCIAL BANK A
GOOD ALTERNATIVE
YES
NO
CAN'T SAY

SURVEY
In this section the customers were asked about the
security features they look for detecting forged notes.
In order to confuse the customers and to check their
familiarity with security features of notes, some of
the options added were false like the thickness, size,
and color of note as they are not included in the table.
Only small portion of the sample population marked
them for checking forged notes. The customers
considered security thread as the key security feature
for detecting forgery, followed by MG watermark and see through register.
6.5.4. MISCELLENEOUS
MG
WATERM
ARK
THICKNES
S
SECURITY
THREAD
SIZE
NUMBER
PANEL
OPTICALL
Y
VARIABLE
INK
INTAGLIO
PRINTING
SEE
THROUG
H
REGISTER
COLOUR
OF NOTE
FLUORES
CENCE
Series1 67 18 133 3 4 8 25 65 8 14
0
20
40
60
80
100
120
140
SECURITY FEATURES OF NOTES
YES
30%
NO
70%
PAISA BOLTA HAI
CAMPAIGN
0
100
200
`1 `2 `5 `10
Series1 99 105 64 17
DENOMINATIONS USED

SURVEY
In this section questions regarding the denomination of coins frequently used, supply of coins
and awareness about plastic money. As per the survey conducted coins of denomination ` 1 and
` 2 followed by `5 and ` 10 coins. Regarding the supply of coins the customers were slightly
disappointed because of low supply of coins with 58 per cent saying that they weren’t getting
adequate supply of coins. This is because of the reason that RBI is undergoing transition of
closing of its retail function.
The level of awareness among the customers about the plastic money was not that bad with 74
per cent of the sample population being aware and only 26 per cent being unaware.
Though familiar with its usage the 35 per cent of the respondents still think that plastic money
cannot replace cash in future in INDIA. This percentage of the population belongs to group of
people who are risk averse while 34 per cent were of the view that it would and these are the
people who are risk takers and want to try new
things. 31 per cent said they can’t say anything in
this regard and these are the people who are
concerned with the security issues involved in the
usage of banks and still regard cash as a safe mode of
transaction.
Thus a lot needs to be done in this area as people still
have a negative and ignorant mindset towards the use
of plastic money which is still a work in progress.
42%
58%
SUPPLY
YES
NO
74%
26%
PLASTIC MONEY
AWARENESS
YES
NO
34%
35%
31% YES
NO
CAN'T SAY

SURVEY
Respondent No.: _______
Name (Optional): _________________________ Age: 18-30 31-50 Above 50
Gender: Male Female
Bank: ___________________________ Designation: __________________________
Directions for the Respondents: Tick Mark the Correct Option.
1. Tick the security features of a note you usually notice for checking counterfeit notes.
xi. Mahatma Gandhi Watermark
xii. Thickness of paper
xiii. Security Thread
xiv. Size
xv. Number Panel
xvi. Optically Variable Ink
xvii. Intaglio printing
xviii. See through register
xix. Color of Note
xx. Fluorescence
2. Whether any training is imparted to you by your bank for checking fake notes?
Yes No
3. Are you aware of the Note Refund rules?
Yes No
4. Can you quote any three?
i. ____________________
ii. ____________________
iii. ____________________
5. Are you offering cut/soiled/mutilated note exchange facility at your bank?
Yes No
6. Whether you offer money exchange facility to non-customers?
Yes No
SUGGESTIONS
QUESTIONNAIRE FOR BANKERS
(This questionnaire is aimed at collecting and analyzing information representing the level of familiarity about the
security features of bank notes and the Note Refund Rules. Respondents have been taken from Banks in Jammu City
in Jammu and Kashmir.)

SURVEY
The questionnaire for bankers was filled by the
employees of the three banks namely SBI Hari
Market, PNB Canal Road and Axis Bank Bahu
Plaza. This questionnaire aimed at knowing the
familiarity about the security features of notes and
the Note Refund Rules. The analysis of the
responses have been shown below.
The composition of employees from the three banks
is as shown in the figure with 38 per cent from State
Bank of India, Hari Market, 33 per cent from the Punjab National Bank, Canal Road and 29 per
cent from the Axis Bank, Bahu Plaza.
The questions asked to the employees regarding security features of notes was identical with the
one asked to customers. However mixed responses were obtained as some of the respondents
considered thickness, size and color of the note as one of the security features which were not
meant to be. Security thread still is considered to be the mostly observed security feature for
detecting forgery.
MG
WATERM
ARK
THICKNES
S
SECURITY
THREAD
SIZE
NUMBER
PANEL
OPTICALL
Y
VARIABLE
INK
INTAGLIO
PRINTING
SEE
THROUG
H
REGISTER
COLOR
OF
NOTE
FLUORESC
ENCE
Series1 18 15 19 3 14 14 9 2 9 7
0
2
4
6
8
10
12
14
16
18
20
SECURITY FEATURES
SBI
38%
PNB
33%
AXIS
29%
BANKS

SURVEY
When asked whether training was imparted to
employees for detecting fake notes, 43 per cent of
the employees weren’t given training of any sort.
Though the employees questioned were newly
recruited and weren’t involved in money exchange
operations still they need to be equipped with the
basic fundamentals of banking and well verse with
the Note refund Rules.
This data reflected in this pie-chart is somewhat
different from what actually is. As seen, about 90 per
cent of the employees responded that they were aware
about the Note refund rules, but looking at the bar chart
below, the story is a bit different. There were only three
employees who were able to quote at least three rules
while maximum weren’t able to quote at the most one.
0 1 2 3 4 5 6 7 8
ZERO
ONE
TWO
THREE
ZERO ONE TWO THREE
Series1 7 3 5 3
NOTE REFUND RULES QUOTED
0%
57%
43%
TRAINING BY BANKS
YES
NO
YES
90%
NO
10%
AWARENESS ABOUT
NOTE REFUND RULES
YES NO

CURRENCY MANAGEMENT: ISSUES
In this report I will be discussing the three major issues in Currency Management in Jammu and
Kashmir which are:
1. Forged Notes
2. Non Availability of Fresh Currency
3. Movement of Treasure
4. Plastic Money
7.1. FORGED NOTES
During the year ended March 31,2013, as many as 1398 fake notes were detected in the circle
out of which 875 fake notes were reported by the commercial banks i.e.63 % of total which was
far below the national average of 93 %.The fake notes had pre-dominance of Rs.100 and Rs.500
denomination respectively at 41 and 47 % during 2012-13.
7.1.1. ISSUES
There are 182 branches including currency chests having daily average cash receipts of `
50 lakh and above duly equipped with Note Sorting Machines. However, only few chests are
detecting/reporting fake notes to RBI i.e. J & K Bank -RR Srinagar and Udhampur; SBI- Jammu;
PNB- Jammu Main and Oriental Bank of Commerce. None of the other chests/branches have
ever reported fake notes to RBI.
Fake notes detected/reported by commercial banks in the state amount to only 63% of
total notes detected which does not compare favorably with the national average of reporting by
commercial banks at 93% during 2011-12.
About 48 %of fake notes reported by banks continued to be from 7 branches of ICICI
bank alone since 2010-11 followed by Jammu and Kashmir bank at 35 %.
UCO Bank and Central Bank of India have never detected and reported fake notes.

Total number of fake notes detected /reported in the state recorded continuous decline
from 2352 fake notes during 2010-11 to 1639 fake notes during 2011-12 and 1398 notes during
2012-13 .Reporting of fake notes by the commercial banks ( 63 % ) has also not been in tune
with the national level reporting at 93 % and needs to be pushed up.
During 21012-13 commercial banks have reported 875 out of 1398 fake notes detected/reported
in the circle.
TABLE 7.1: FAKE NOTES REPORTED BY BANKS
BANK 2011-12 2012-13
SBI 83 42
J&K BANK 319 183
PNB 31 46
CBI - 4
OBC 16 20
UCO BANK - -
SBOP - 04
YES BANK - 01
ICICI 439 575
TOTAL 888 875
RBI(COUNTER+CVPS) 751 523
Total Fake Notes detected in circle 1639 1398
7.1.2. REVISED PROCEDURE FOR REPORTING OF COUNTERFEIT
BANKNOTES
With a view to address the issues associated with filing of FIRs on detection of forged
notes, based on the recommendations of HLG on System & Procedure for Currency Distribution,
the following procedure has been finalized by the Bank in consultation with Central
Government/State Governments and advised to all Commercial banks, RRBs, Pvt. /Foreign and

Cooperative banks on July 25, 2011. The revised procedure, as under, is to be implemented with
immediate effect.
For detection of fake notes up to 4 pieces in a single transaction: a consolidated report as
per the format prescribed should be sent by the Nodal Officer of the bank in each district of
operation on behalf of all branches in the district to the Nodal Police Station in that district at the
end of the month. Counterfeit notes will also be deposited with the Nodal Police Station.
For cases of detection involving 5 or more pieces in a single transaction, FIR is to be
lodged with the Nodal Police Station as per jurisdiction.
The Regional Office vide letter dated August 1,2011 has advised all controlling heads of
the banks operating in Jammu & Kashmir to send district wise consolidated report on monthly
basis to the Nodal Police Station with a copy to us.
The matter was also effectively taken up during last SCCM and SLBC meetings.
However, reporting as per revised procedure was not received from banks. The follow up action
by controlling authorities was found lax.
Another issue regarding fake notes is that a lot of fake notes are detected during the processing
of soiled notes in RBI received from commercial banks. As per the statistics in 2011-12, 678
pieces of fake notes were detected which constituted 4.63 fake notes per million and in 2012-13,
the number of pieces of fake notes detected were 420 out of 179.08(million pieces) processed
which results in 2.34 pieces of fake notes per million.
7.2. AVAILABILITY OF FRESH CURRENCY
As per the RBI’s Clean Note Policy in 1999, it is to be ensured that there is adequate supply of
good quality of banknotes/coins to the public, periodically weeding out of soiled notes from the
system and facilitating processes to check circulation of fake notes. Several steps have been
taken by the Bank for implementation of the Policy which include augmenting supply of
banknotes by setting up of Two Banknote presses as subsidiaries of RBI at Salboni and Mysore.
Though in the state of J & K, RBI supplied 302 million pieces valuing ` 6100 crores and 297
million pieces valuing ` 7256 crore during 2011-12 and 2012-13 respectively, still there prevails

an issue with the availability of fresh currency to general public. This is probably because of the
low performance on part of the currency chest branches in collecting soiled notes. Table below
show the data for the soiled notes received from the chests.
TABLE 7.2: SOILED NOTES RECEIVED FROM CHEST (PIECES IN MILLION)
2011-12 2012-2013
UP TO 50 100 & ABOVE TOTAL UP TO 50 100 & ABOVE TOTAL
93 109 202 105 113 218
GROWTH 3.06% GROWTH 7.92%
The target for the soiled notes for 2012-13 was 269 million pieces against the actual performance
of 218 million pieces.
TABLE 7.3: COMPARATIVE POSITION OF BANKS
Bank Chests 2011-12 Share to
Total%
2012-13 Share to
Total
(%)
Target(million
Pieces)
Performance
SBI 17 35 17.0% 58 35.35 16.2%
JKB 9 140 70.0% 170 156.11 71.5%
PNB 4 19 9.5% 29 17.59 8.0%
CBI 1 3 1.50% 4 2.92 1.3%
OBC 1 3 1.0% 4 3.94 1.8%
UCO 1 2 1.0% 4 2.42 1.2%
TOTAL 33 202 100.00 269 218.33 100.00

7.3. MOVEMENT OF TREASURE
FIGURE 7.1: MOVEMENT OF TREASURE
As shown in the figure the movement of treasure is complex process which involves four
verification steps. The notes are supplied by the four Note printing Presses two owned by Govt.
of India at Nasik(Currency Note Press) ; Dewas(Bank Note Press) set up respectively in 1928
and 1975 and two wholly owned subsidiaries of RBI at Salboni and Mysore both set up in 1995.
Coins are minted in four Mints at Alipur (West Bengal), Noida (Delhi), Hyderabad and Mumbai.
The notes and coins from the presses and mints are supplied to RBI Offices which are then
supplied to currency chests and public. The first verification takes place at the presses and mints
when an indent is placed with them from the RBI offices. The second verification takes place at
the RBI after the remittance is received. Then when a Currency Chest Bank places an indent with
the RBI, third verification takes place at RBI before sending the remittance. Finally the fourth
verification takes place at the currency chest branch when the remittance is received.
However if the remittances are directly transferred from the presses/mints to the currency chests
then the four step verification can be reduced to only two step verification, one at the press/mint
and the other at the respective currency chest.

7.4. PLASTIC MONEY
Despite the emergence of various alternatives to cash-based transactions (credit/debit cards,
cheques, internet-based payments, etc.), currency retains its pre-dominance as the use of
currency substitutes is associated with a significantly higher level of literacy, awareness and
income than prevailing currently. The use of currency as a mode of transaction is also
encouraged by government social sector expenditure as this contributes to increase in cash based
transactions, particularly in rural areas.
The level of awareness among the customers about the plastic money was not that bad with 74
per cent of the sample population being aware and only 26 per cent being unaware.
Though familiar with its usage the 35 per cent of the respondents still think that plastic money
cannot replace cash in future in INDIA. This percentage of the population belongs to group of
people who are risk averse while 34 per cent were of the view that it would and these are the
people who are risk takers and want to try new things. 31 per cent said they can’t say anything
in this regard and these are the people who are concerned with the security issues involved in the
usage of banks and still regard cash as a safe mode of transaction. Table shows the Currency-
GDP ratio from 1971 to 2011. As shown over the years the currency has increased significantly.
TABLE 7.4: CURRENCY TO GDP RATIO
1971-80 1981-90 1991-2000 2001-10 2010-11 2011-12
10 10.2 10.5 12.4 13 12.5
The year to year movements in currency-GDP ratio are shown in the chart below which reveal an
increasing trend, particularly since mid-1990s. The rise in the Currency-GDP ratio has,
interestingly, occurred at about the same time that there have been developments in alternative
modes of payments, a marked increase in the proportion of services to GDP, increased
opportunity cost and lower transactions costs of holding currency (higher rate of return from
bank deposits and a rise in the number of ATMs, respectively).

FIGURE 7.2: CURRENCY TO GDP (CURRENT PRICES, FACTOR COST) RATIO
(1970-71 to 2010-11)
Thus a lot needs to be done in this area as people still have a negative and ignorant mindset
towards the use of plastic money which is still a work in progress.

SUGGESTIONS AND RECOMMENDATIONS
Finally concluding the report I would like to in this chapter offer a few suggestions regarding
Currency Management operations in the state of Jammu and Kashmir regarding factors which
are stymying the growth of the state, the availability of fresh currency, the menace of black
money, RBI’s retail function etc. Most of the suggestions are derived from the survey conducted
through questionnaire, personal interview and observations.
The suggestive part consists of the following:
1. Awareness about Security Features of Bank notes
2. Commercial Banks Retail operation
3. Supply of fresh currency
4. Note Refund Rules
5. Incentivizing collection of Forged notes
6. Tackling Menace of Forged Notes
7. Reducing Skepticism among customers
8. Promoting use of Plastic money
9. Timely update security features
10. GPRS enabled Security Vehicles
8.1. AWARENESS ABOUT SECURITY FEATURES OF NOTES
After analyzing the responses of the customers and the bankers
regarding the security features of bank notes, the data revealed that
most customers are still incapable of identifying the genuine note
from the fake one because of lack of awareness among them. The
“Paisa Bolta Hai” campaign was not much a hit among the general
population as only 30 per cent of the sample population was aware
of it. Many people still don’t look for any security feature in notes
the result of which is that they get fooled by the forged notes. RBI

should use mass advertising for its campaign and should promote it at key areas which are
vulnerable to such incidents. Bankers who are involved in cash dealing should also be timely
inspected in order to find their level of familiarity with the security features as they are the ones
who are dealing directly with the public. Moreover banks should place ‘KNOW YOUR
BANKNOTE’ at a visible location inside the bank.(Details given in the Annex-III)
8.2. COMMERCIAL BANKS RETAIL OPERATION
It’s a good decision as presently the RBI is located centrally in Jammu and it is difficult for some
persons to spare time for getting coins, notes and exchanging cut/soiled/mutilated notes at RBI
because of locational factors. Thus getting access to this service at their nearby banks would be a
wise decision. Presently there are eight banks in J & K who are performing such functions. Four
of them who are performing such function in Jammu are:
- SBI, Hari Market
- PNB, Canal Road
- Axis Bank, Bahu Plaza
- Canara Bank, Bari Brahmna
RBI should follow a parallel transitory phase for which it should
along with the commercial banks perform its retail function and the banks should be strictly
monitored and this process should continue for at least six months and only when RBI realizes
that the customers coming to its cash counter have decreased significantly and the banks are
satisfactorily performing the function then only RBI should close its retail function. Banks
should be strictly penalized for discrepancies. RBI’s cash counter service was rated 3.45 on a
scale of one to five by the customers.
So in order to successfully and efficiently transfer its retail function to
commercial banks RBI should
Advertise the listed banks
Run a parallel function along with banks till the time they are able to perform the
function satisfactorily.
Include more banks to carry on the retail function.

Banks at key locations should be preferred,
However seeing the performance of the three listed banks SBI Hari Market, PNB Canal Road
and Axis Bank Bahu Plaza, I would doubt if commercial banks will be able to handle such
operations as efficiently as RBI as 44 per cent of the customers who visit banks were of the view
that the facility was not extended to non-customers. The banks are being discriminatory when it
comes to such services.
PNB Canal Road was still not having any dedicated counter for coins, notes and
cut/soiled/mutilated notes exchange facility.
Banks branches do not distribute coins as it is not an economic activity for them.
People near the vicinity of these banks were not aware of such services being offered by
the banks and still considered RBI for such transactions.
It is therefore advised that RBI should first see the capability of Banks to handle such functions
in terms of factors like
 Public dealing.
 Ample availability of space for setting up counters.
 Availability of staff etc.
8.3. SUPPLY OF FRESH CURRENCY
Still there are lot of soiled notes in circulation probably because of less reporting of
soiled notes by the banks.
Again in this regard the customers should be made aware of the note refund rules apart
along with security features.
Banks should be willing to accept soiled notes from the public as data shown in Chapter
VI reveals that 218 million pieces of soiled notes have been reported by the currency
chest branches instead of target of 269 million pieces for 2012-13.
Another reason is the lack of awareness among bank employees regarding the Note
Refund Rules.

8.4. NOTE REFUND RULES
Though the bank employees scored high on the note refund rules with 90 per cent aware,
they were not able to quote them.
There were only three employees out of 21 who were able to quote at least three rules.
Maximum weren’t able to quote at the most one.
The employees were from SBI Hari Market, PNB Canal Road and Axis Bank Bahu
Plaza, the listed branches for carrying out RBI’s retail operation.
Again I would like to suggest that every Bank should impart training to its
employees in relation to the basic fundamentals of banking and the Note refund rules as they are
the ones who are frequently dealing with the customers.
The details regarding Note Refund Rules are given in the Annex-I.
8.5. INCENTIVIZING COLLECTION OF FORGED NOTES
To address the menace of counterfeit notes, the central bank should incentivize the banks for
reporting of counterfeit notes. During 2012-13 commercial banks reported 875 out of 1398 fake
notes detected/reported in the circle. The bank wise data has been shown in Chapter VI.
8.6. TACKLING MENACE OF FORGED NOTES
Some suggestions for tackling the menace of forged notes are:
Awareness and publicity campaigns.
Adequate provision of Note Sorting Machines (NSMs).
Augmenting the security features. Non-disruptive withdrawal of notes in old
series by replacement with notes in new series.
ATMs should be equipped with sensors for detecting counterfeit notes.
Strengthening security systems at currency chests and more intensive supervision
of chests by RBI.

RBI’s efforts at checking counterfeiting will be effective only if
there are equally effective efforts by banks. Banks should ensure that counterfeit notes are
promptly detected once they enter the banking system, and that there is prompt and accurate
reporting. They should ensure that only clean and genuine notes are issued through their ATMs
and over the counters. As currency notes are an integral part of our daily life, we, as users,
should understand the various security features of the notes. These features are prominent, and
can be easily identified. Enhanced public awareness will by far be the most effective deterrent to
counterfeiting.
8.7. REDUCING SKEPTICISM AMONG CUSTOMERS
In order to encourage reporting of fake notes by the customers, the banks should be able to
convince the customers and try to reduce their doubts pertaining to forgery. This is possible only
if the banks are having up to date information regarding the procedures for reporting of
counterfeit banknotes. They should actively pass on this information to the customers. Then only
the altercations between the bank and the customers can be reduced.
8.8. PROMOTING USE OF PLASTIC MONEY
A lot of awareness needs to be imparted to customers regarding the use of plastic money.
At the same time cashless transactions should be made secure so as to avoid any incident
of fraud which usually occurs at the back end.
Customers should be provided some kind of training to use internet banking to avoid
phishing attacks.
Bulk users of plastic money should be incentivize.
The banks must also be educated to promote e-payments; training programs for senior
management of the banks will assist in achieving this.
It is also further recommended that strategic segments of the economy be the subject of
focus first especially the unbanked segment. In that way the vision of reducing the
unbanked will be done gradually and systematically.

8.9. TIMELY UPDATE OF SECURITY FEATURES
The security features of notes should be updated timely and at the same time it should be
aggressively advertised so that people are also aware of it. However some of the following steps
can be taken in this regard:
Security features need to be reviewed and updated from time to time.
Take advantage of latest research and technology in the field.
Always stay ahead of counterfeiters.
8.10. GPRS ENABLED SECURITY VEHICLES
GPRS based Vehicle Tracking System should be installed in vehicles used for sending fresh
notes/receiving soiled notes to/from the currency chests so as to keep track of movement of
treasure.

ANNEXURE
NOTE REFUND RULES, 2009 Annex- I
In exercise of the powers conferred by the proviso to section 28, read with clause (q) of the sub-
section (1) and (2) of section 58, of the Reserve Bank of India Act, 1934 (2 of 1934) and in
supersession of the Reserve Bank of India (Notes Refund) Rules, 1975, except as respect things
done or omitted to be done before such supersession, the Central Board with the previous
sanction of the Central Government, hereby makes the following rules for specifying the
circumstances in, and the conditions and limitations subject to which, the value of lost, stolen,
mutilated or imperfect note may be refunded as a matter of grace, namely:-.
1. Short title, application and commencement :- (1) these rules may be called the Reserve
Bank of India (Note Refund) Rules, 2009.
(2) They shall apply to a note, which is a legal tender on the date of its presentation before the
Bank
(3)They shall come into force on the date of their publication in the Official Gazette.
2. Definitions:-
In these rules, unless the context otherwise requires:-
(a) "Act” means the Reserve Bank of India Act, 1934 (2 of 1934);
(b) ‘Bank’ means the Reserve Bank of India constituted by section 2 of the Act;
(c) "Bank note" means any note issued by the Bank, but does not include a Government note
other than one rupees note, which has been deemed to be bank note as per the Notification no.
G.S.R 426, dated the 28th March, 1980 issued by the Government of India, Ministry of Finance,
Department of Economic Affairs;
(d) "Essential features" means the features, including security features, which are necessary for
the identification of a note, namely-,
(i) The name of the issuing authority in Hindi and/or English, that is; Bank or Government of
India, as the case may be;

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