Saturday, February 11, 2017
Sunday, December 04, 2016
The denominations in which the notes and coins of any country exist have an impact on daily financial transactions of that country. Selecting the best possible denominations is by no means a random or casual process. It requires deep study and research. Not all countries have that expertise.
Fortunately there is an easy way out, learn from the experience of other successful economies and adapt their selection with any necessary modification. The largest and most dynamic economy in the world over the last century or so has been the American one and lessons may be learned from their selection. The Canadians have not only copied their model but also the design of their coins closely varying the print and logo for their own country. The present note is now confined to India. The denomination of notes and coins as prevail are:
Coins: ½, 1, 2, 5, 10 Rupees
Notes: 5, 10, 20, 50, 100, 500 and higher values in Rupees
Compare this to the American and Canadian Selection;
Coins: 1, 5, 10, 25 Cents
Notes: 1, 2, 5, 10, 20, 50, 100 Dollars and higher values
The Indian selection may have been an appropriate one a few decades ago when the value of a dollar was close to that of the Rupee. However since then, inflation has brought a dollar closer to hundred rupees rather than 1 and the present selection no longer remains appropriate. A correction can be made with the following changes:
- Stop production of 5, 10, and 20 Rupee notes and let them be extinguished naturally over time. Instead launch a production of a 200 Rupee note. Any duplication between notes and coins is not only wasteful, it is also stupid.
- In coins stop production of 2 Rupee coins. Instead launch a 25 Rupee coin
Under the present scheme, even the 50 Rupee note is superfluous but it may be retained until enough 25 rupee coins come in circulation. The 1/2 Rupee coin may however be retained until some time in future until inflation erodes its usefulness.
The Indian Rupee, Japanese Yen and The American Cent all have a value that is of the same order of magnitude and fluctuates with market variations. One could also look at the Japanese example to select denominations of notes and coins. Bills come in 1,000 yen, 2,000 yen (very rare), and 5,000 yen and 10,000 yen denominations. Coins come in 1 yen, 5 yen, 10 yen, 50 yen, 100 yen and 500 yen denominations. Counterfeit money is not an issue in Japan.
The equivalent pattern translated to India would lead to
Coins: 1, 5, 10, 50, 100, 500 Rupees
Notes: 1000, 2000, Rupees and higher values
This shows a heavy dependence on coins rather than notes, therefore the American pattern is closer to existing Indian practice. But it may be noted that here too, there is no 2 rupee coin equivalent and it is best discarded as soon as possible to make transactions quicker and simpler.. However unlike the American quarter, 25 they have a 50 yen coin. It seems either would be just as effective. There is also no duplication between notes and coins.
Design: Aside from denominations, a proper selection of design of notes and coins is also needed. Here again the example of USA and Canada is a good one to follow since they have not felt the need to change their designs for a century while those in India change every few years. Not changing the design would bring to an end the lucrative and corrupt industry that makes commissions from design changes likely but instead will ease machine handling of notes and promote coin operated slot machines.
For a History of Indian Coins and Currency see this excellent article:
Note: The reader may read more on the topic by the author in an earlier note of this blog on the same issue here:
At the Present time, a remonetization drive launched by PM Narendra Modi is on in India in order to clean up the financial system, The adoption of suggestions 1 and 2 above will help ease the cash shortage rapidly.
Note: The author has used the word – stupid and mention of corruption in this note intentionally, not from arrogance but in utmost humility because the use of diplomatic language in such matters often causes the point to be missed or glossed over.