RASAGNA SOMARAJU

AP22322130023

BANK MANAGEMENT

ASSIGNMENT ON CURRENCY ISSUE POLICY OF RBI

Currency issue policy refers to the guidelines and decisions set by a central bank or monetary
authority regarding issuing and managing a country's currency. It encompasses various aspects
related to the production, distribution, and withdrawal of physical currency notes and coins within
an economy. The primary objectives of a currency issue policy typically include maintaining price
stability, facilitating efficient monetary transactions, preventing counterfeiting, and ensuring the
smooth functioning of the monetary system.

RBI's Currency Issue Policy:

The Reserve Bank of India (RBI) plays a crucial role in managing the currency in India through its
currency issue policy. This policy encompasses various aspects, including:

Demand Estimation and Money Supply Management:

 Demand Forecasting: RBI utilizes various models and statistical techniques to forecast the
demand for cash across different denominations in various regions. Factors like GDP
growth, inflation, population demographics, and digital adoption are considered.

 Quantitative Tools: To manage the money supply in line with the estimated demand, RBI
utilizes tools like:

o Open Market Operations (OMOs): Buying and selling government securities to inject
or mop up liquidity from the financial system.

o Cash Reserve Ratio (CRR): The portion of deposits that banks must maintain with
RBI, influencing the amount of money available for lending.

o Variable Repo Rate (VRR): Interest rate at which RBI lends short-term funds to
banks, impacting borrowing costs and money supply.

Design and Security of Currency:

 Security Features: Banknotes and coins incorporate various security features, including
watermarks, security threads, microprinting, and unique numbering, to deter counterfeiting.

 Regular Upgradation: RBI periodically upgrades these features to stay ahead of

counterfeiters and maintain public trust in the currency.

 Innovation: New technologies like polymer banknotes are being explored for durability and
advanced security features.

Issuance and Withdrawal:

 Issuing Currency: RBI supplies new banknotes and coins to the public through its Issue
Offices located in major cities. It also works with authorized banks that maintain currency
chests to distribute cash across the country.
  Withdrawal of Unfit Currency: Banks and RBI identify and collect damaged or unfit notes
and coins from circulation. These are then processed and destroyed through a secure
process.

Denomination Mix:

 Public Demand: RBI closely monitors public demand for different denominations through
surveys and other channels.

 Transaction Needs: The mix considers the value of common transactions, ease of carrying
cash, and printing costs.

 New Denominations: Based on the analysis, RBI may introduce new denominations
(e.g., ₹2000 note introduced in 2016) or withdraw existing ones (e.g., withdrawal of ₹2000
note in 2023).

Foreign Exchange Reserves Management:

 Exchange Rate Stability: RBI intervenes in the foreign exchange market by buying or selling
foreign currency to maintain a stable exchange rate for the Indian rupee.

 Meeting International Obligations: It manages reserves to meet India's international

obligations arising from trade, capital flows, and external borrowings.

Transparency and Accountability:

 Policy Communication: RBI publishes its currency management policies and

reports, including annual reports and the Monetary Policy Statement.

 Public Awareness: Educational campaigns are conducted to inform the public about security
features and proper handling of currency.
The Reserve Bank of India (RBI) formulates its currency issue policy based on various factors and
considerations that influence the supply, distribution, and management of currency within the Indian
economy. Some of the key factors that determine the currency issue policy by the RBI include:

1. Monetary Policy Objectives: The RBI's currency issue policy is aligned with its broader
monetary policy objectives, which include maintaining price stability, promoting economic
growth, and ensuring financial stability. The issuance of currency is managed in a manner
that supports these objectives, such as controlling inflation or facilitating economic
transactions.

2. Economic Conditions: The RBI considers the prevailing economic conditions, including
factors like GDP growth, inflation rates, employment levels, and overall economic activity, to
assess the demand for currency within the economy. Economic indicators help determine the
appropriate quantity and denominations of currency to be issued.

3. Currency Demand: The RBI monitors and analyzes the demand for currency from various
sectors, including households, businesses, and financial institutions. Factors influencing
currency demand include consumer preferences, cash usage patterns, technological
advancements, and changes in payment systems.

4. Currency Circulation Trends: The RBI tracks the circulation of currency within the economy,
including the velocity of money, cash withdrawals and deposits, currency hoarding, and cash
usage in different regions and sectors. These trends inform decisions regarding the supply
and distribution of currency to ensure adequate liquidity and meet demand.

5. Security Considerations: Ensuring the security and integrity of currency notes and coins is a
critical aspect of the RBI's currency issue policy. The central bank continuously assesses and
updates the design, printing, and minting processes, as well as the security features of
currency, to deter counterfeiting and maintain public trust in the currency.

6. Technological Advances: The RBI evaluates advancements in technology and payment

systems, such as digital payments, electronic transfers, and contactless transactions, which
may impact the demand for physical currency. Technological developments influence
decisions regarding the optimal mix of cash and non-cash payment instruments in the
economy.

7. Currency Management Costs: The RBI considers the costs associated with currency
production, distribution, and retirement when formulating its currency issue policy. Efficiency
and cost-effectiveness are important considerations in managing the currency supply chain
and optimizing the use of resources.

8. Legal and Regulatory Framework: The RBI operates within the framework of relevant laws,
regulations, and guidelines governing currency issuance, circulation, and management.
Compliance with legal requirements and adherence to international standards are integral to
the formulation and implementation of the currency issue policy.

By taking into account these factors and conducting regular assessments of currency dynamics and
economic trends, the RBI develops a comprehensive currency issue policy aimed at maintaining the
stability, integrity, and efficiency of India's monetary system.