The Reserve Bank of India (RBI) is preparing to circulate 1 billion plastic notes of 10 rupees (6 fils) in five cities to test their practicability. Samanth Subramanian reports
India to circulate plastic currency
NEW DELHI // Paper or plastic? The option in India will soon apply not only to the bags that hold the groceries, but also to the cash used to purchase them.
The Reserve Bank of India (RBI) is preparing to circulate 1 billion plastic notes of 10 rupees (6 fils) in five cities to test their practicability.
Namo Narain Meena, India's deputy finance minister, told parliament two weeks ago that the purpose of the new notes was to increase the lifespan of the currency and combat counterfeiting.
The five cities - Kochi, Mysore, Jaipur, Bhubhaneshwar and Shimla - have been chosen for their geographic disparity and to test the effect of their varying climates on the notes. No date has been announced for the start of the trials.
Plastic currency notes - or polymer banknotes, as they are also called - were first issued in Australia in 1988 and have since been adopted in Singapore, Brazil, Mexico and Nigeria, among other countries.
Only a handful of nations have switched over entirely to polymer currency. They include Canada, New Zealand, Brunei and Vietnam.
In the short run, polymer banknotes are more expensive to print, said Kishore Jhunjhunwalla, co-author of The Standard Reference Guide to Indian Paper Money. "If it wasn't for this factor, in fact, they would have been introduced a long time ago," he said.
There have been no estimates in India of the cost of printing banknotes on paper versus plastic. But central banks in Canada and New Zealand have said that plastic notes cost twice as much to produce.
However, polymer notes have an average lifespan of five years, compared with one year for paper notes.
"You can tear paper with your fingers. You can't do that with polymer notes," Mr Jhunjhunwalla said. "It isn't easy to write on polymer notes or crease them. Paper is affected in climate that is too cold or too warm or too rainy."
For the RBI, the durability of plastic cuts the expense of printing replacements for soiled paper notes and disposing of those taken out of circulation. According to the RBI's annual report for the year from 2009 to 2010, 13 billion banknotes - nearly a quarter of all the notes in circulation - had to be destroyed.
Until the mid-1990s, retracted banknotes were burnt. Today, as in many other countries, soiled paper notes are shredded.
"But then the question becomes: what do we do with the shreds?" R Gandhi, executive director of the RBI, said. "So far, we haven't succeeded in figuring out any successful commercial takers for that."
The RBI has tried to recycle shredded notes into novelty paperweights, bricks or cardboard. But Mr Gandhi said they discovered the paper was so finely shredded that they could not even give it away. The shredded notes now make their way to landfills and land reclamations.
Mr Jhunjhunwalla said the first transitions to polymer currency notes elsewhere in the world were made to tackle counterfeiting by incorporating security features such as holograms, metallic images, hidden numbers and raised ink.
"In India, at least at the moment, polymer printing technology is not advanced enough to be able to counterfeit currency notes," he said.
In its 2009-2010 report, the RBI said it had detected more than 400,000 counterfeit notes of various denominations, enough to call them a "menace".
Mr Jhunjhunwalla said he did not foresee India switching completely to polymer banknotes in the near future. "Given the volume of notes in circulation ... I doubt it will be practical," he said.