RBI’s Cash Planning Challenged by Rising Currency in Circulation

India’s currency in circulation (CIC) continues to expand at double-digit rates, even as digital payment adoption rises. This trend complicates the Reserve Bank of India’s (RBI) efforts in planning for future cash demand, production, and distribution.

Key Currency Figures

• Approximately 176 billion banknotes are currently in circulation across India.
• The RBI produces between 28 billion and 30 billion banknotes annually.
• Roughly 21 billion banknote pieces are disposed of each year.
• For comparison, the US had around 56 billion dollar bills and Europe had 30 billion euro banknotes in circulation last year.

RBI Deputy Governor Shirish Chandra Murmu explained that India’s high banknote count is partly due to a denomination mix. The system is weighted towards lower-value notes, meaning more physical pieces are exchanged for the same transaction value.

Enhancing Banknote Durability and Sustainability

To address the wear and tear on notes, the RBI is actively exploring methods to extend banknote durability. This includes investigating surface coatings on existing substrates and introducing polymer notes, particularly for lower denominations.

• The Indian government has approved the introduction of one billion polymer banknotes in Rs 10 and Rs 20 denominations for field trials.
• The RBI aims to circulate pilot polymer banknotes starting from the beginning of FY28, contingent on successful field trials and operational assessments.
• A tendering process has been initiated to procure the necessary polymer substrate.
• These notes will undergo rigorous testing under specific Indian climatic and usage conditions before any broader rollout decision.

Beyond durability, the central bank is also committed to reducing the environmental impact of the cash cycle. Efforts include optimising its distribution network and improving the disposal processes for banknote briquettes.

RBI’s Approach to Currency Management and Projections

Murmu emphasised that effective cash management remains a critical responsibility for central banks, despite the surge in digital payments. Maintaining public confidence in physical currency is paramount for financial stability.

The RBI’s currency demand projections are formulated based on a comprehensive five-year forward assessment. Transactional demand estimates incorporate several key economic indicators.

• Changes in currency in circulation
• Gross Domestic Product (GDP) growth
• Prevailing interest rates
• Food inflation trends
• The rate of digital payment adoption

Under its Clean Note Policy, established in 1999, the RBI ensures citizens have access to good-quality banknotes of their preferred denominations. Banks are tasked with assessing note quality and replacing unfit currency.

India also boasts significant domestic capacity for currency production, with banknote paper mills, four currency printing presses, and ink units owned and controlled by the RBI and the Government of India. This self-reliance ensures the domestic production of high-security banknotes across six denominations.