Relevance: GS-3: Indian Economy and issues relating to Planning, Mobilization of Resources, Growth, Development and Employment; Science and Technology- Developments and their Applications and Effects in Everyday Life; Challenges to Internal Security through Communication Networks, Role of Media and Social Networking Sites in Internal Security Challenges, Basics of Cyber Security; Money-Laundering and its prevention

Key Phrases: Polymer banknote, series G notes (bank of England notes), RBI’s Annual Report 2011, 2021; relative longer life of polymer note, reduced carbon footprint.

Why in News?

• In December, the Central Bank of the United Arab Emirates announced that the new 50-dirham polymer banknote would be used alongside the paper banknote as official currency.
• Ahead of that, in October, the Bangko Sentral ng Pilipinas, the Philippines central bank, confirmed that it would have a trial run of a few hundred million pieces of the 1,000 peso on polymer in the first half of 2022.
• And in August, the State Bank of Pakistan unveiled its plan of a commemorative polymer note
  • To mark the 75th anniversary of independence in 2022 and
  • Another to mark the 75th anniversary of the founding of the central bank in 2023. The Central Bank of Trinidad and Tobago introduced a new $1 polymer note and an updated $50 one in February 2021.

Key highlights of this article

• 76 of the world’s 195 countries are now using polymer notes
• The region-wise breakup:
  • Asia and Oceania (23),
  • Latin America (16),
  • Africa (13),
  • Europe (11),
  • West Asia (6),
  • South America (4),
  • Central Asia (2) and
  • North America (1)

Why are so many countries rushing to switch to polymer notes?

Apart from many other benefits, to save the environment.

• A June 2016 International Monetary Fund (IMF) paper says, “As countries sign on to the Paris Agreement on climate change and strive to become more sustainable, many are considering the environmental impact of their currency as well as its durability and security.”
• Quoting a study, it says that compared to paper, a polymer bill promises
  • 32 per cent reduction in global warming potential and
  • 30 per cent reduction in primary energy demand.

History of currency notes

• Money has been made from a variety of materials over the years
  • From leather in China during the Han Dynasty, to shells, precious metals, cotton paper, and most recently, plastic
• The change in materials is the reflection of the social and political climate of the time as well as available technologies and resources.
  • In the 13th century Marco Polo reported back to Europe from his travels on the use of paper rather than coins, and
  • Europe’s earliest modern paper banknotes were issued by the Bank of Stockholm in 1661
• Australia was the first country to issue polymer banknotes in 1988. But, the first polymer banknote was developed by 1980 and issued in Haiti as a promotional version. Costa Rica and the Isle of Man also experimented with polymer notes ahead of Australia, in 1983.
• The Bank of Canada began its move to polymer banknotes in 2011.
• The most recent series of Bank of England banknotes, technically known as Series G, was launched over a five-year period between 2016 and 2021.
  • On announcement of the UK move, then Bank of England Governor Mark Carney mentioned the benefits of polymer notes
    • The quality of polymer notes is higher,
    • They are more secure from counterfeiting, and
    • They can be produced at lower cost to the taxpayer and the environment.
  • The UK will withdraw legal tender status of paper 20s and 50s on September 30, 2022 which will mark the last day of the paper banknotes in the UK after more than 300 years.

Fate of Polymer notes in India

• The Reserve Bank of India (RBI) has shelved its plan for polymer notes more than a decade after it invited an expression of interest, or EoI, from global manufacturers for one billion pieces of ₹ 10 denomination polymer bank notes in dollar terms
• Former RBI governor Duvvuri Subbarao had commissioned a study on the “environmental impact” of polymer notes by The Energy and Resources Institute (TERI) , New Delhi.
  • He had also spoken about the relative longer life of polymer notes and their recycling leading to a reduction in the carbon footprint.
• In a written reply to the Rajya Sabha in March 2013, then Minister of State for Finance Namo Narain Meena had said the “field trial” of polymer notes would be conducted in five cities: Kochi, Mysuru, Jaipur, Bhubaneswar and Shimla.
  • They were chosen taking into account their geographic location and climatic diversity even as successive RBI annual reports, beginning financial year 2011, spoke about introducing polymer notes on a “field trial” basis and focused on the relative advantages of polymer notes as cost effective, more secure and difficult to counterfeit.
• Finally, the 2015 annual report mentioned that the request for proposal (RFP) for banknotes in the ₹ 10-denomination had been issued and its technical evaluation undertaken. (Till 2020, the RBI followed the July-June accounting year.)
• This was followed up by a “field trial” of plastic notes in the denomination of ₹ 10 assigned to the Bharatiya Reserve Bank Note Mudran Private Ltd and the government-owned Security Printing and Minting Corporation of India Ltd.
  • The 2016 annual report spoke about this. Since then, Nothing much has been done on this.
• Meanwhile, in 50 days, between November 10 and December 30, 2016, ₹ 15.4 trillion worth of currency notes of denominations of ₹ 500 and ₹ 1,000
  • Some 86.9% of the value of the total notes in circulation were withdrawn under the demonetisation programme.
  • RBI’s 2017 annual report said nearly 99% of currency that had been scrapped returned to the system.
• While discussion and debate on polymer notes stopped, to replace the ₹ 500 and ₹ 1,000 currency notes, ₹ 2,000 denomination notes were produced by the currency printing presses with the paper supplied by the paper mill in Mysuru.
  • Another 1,000 tonnes of paper was imported from Landquart AG, Switzerland, to produce more ₹ 2,000 notes but no one knows whether it has been used as no fresh ₹ 2,000 currency note is being produced.

• Incidentally, some time back, it was decided that high-value notes should have two threads of securitisation but that has not happened as yet.
  • Such a thread and a thin ribbon threaded through the notes paper is a security feature of banknotes to protect against counterfeiting.
• RBI data says in March 2021, ₹ 28.27 trillion worth of bank notes were in circulation, rising 16.8 % from 2020, while the volume rose 7.2 %, against an increase of 14.7 % and 6.6 % , respectively, seen in the previous year.
  • In March 2021, the value of coins in circulation was ₹ 26,870 crore.
• While the cost of production of polymer currency notes is far higher, their longevity justifies such a cost.
  • Particularly, the lower denomination currency notes in India normally don’t last beyond one year.
  • If they are made of polymer, the life could be as long as five years. But the paper lobby talks about the ink of polymer currency dissolving fast and that fire can destroy such notes quickly compared with paper notes.
• The idea of a hybrid product was also explored whereby a currency note can be made of both polymer and paper. It was decided that instead of ₹ 10, 10 million ₹ 20 denomination polymer currency notes would be produced as ₹ 10 notes would be coinised. But what put to rest all plans is probably the alleged use of tallow or animal fat for the production of polymer currency.

Conclusion

• It is time to revisit the idea of polymer notes when the RBI is talking about climate-related risks and its commitment to support greening India’s financial system beside many other benefits

Source: The business standard

Mains Question:

Q. Analyse the pros and cons of introducing the Polymer Bank Notes in India.