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Why size of the coins is decreasing in India

18-DEC-2017 04:32
    Evolution of coins in India

    The Reserve Bank of India (RBI) is India's leading monetary institution. The RBI prints new currency notes and circulated them through commercial banks across the country. RBI regulates the money supply in the country's economy. If there is more money in the country, then it increases the policy rate such as Cash Reserve Ratio (CRR), Bank Rate and Repo Rate and squeezes the money supply.
    The highest monetary authority of India i.e. RBI prints the currency notes of all denomination except one rupee because one rupee note is printed by the Ministry of Finance and signed by the Finance Secretary. However, the Finance Ministry circulates one rupee notes and coins into the economy through the RBI only.
    Where coins are minted in India?
    India has 4 locations where coins are printed; these are,
    1. Mumbai
    2. Alipore (Kolkata)
    3. Saifabad, Cherlapally (Hyderabad)
    4. Noida (UP)

    Mints in india
    Note: The Bombay and Calcutta Mint was founded by the British in 1829, while the Hyderabad Mint was set up by the Nizam of Hyderabad in 1903, which was taken over by the Indian government in 1950 and it started minting the coins from the year 1953 for the Indian government.
    The last mint was established by the Indian government in Noida in Uttar Pradesh in 1986, since then coins are minted here. It is necessary to tell that the 3 mints mentioned above make a mark on their minted coins, which helps in identifying the place of their minting.
    The mark shows where the coin is cast?
    A mark is made on every coin, which tells the place of its origin. If there is a ‘star’ given below the date on the coin, then this mark means that the coin is minted in Hyderabad. Coins minted at Noida have a ‘solid dot’ on the tail side of the coins. Coins minted at Mumbai have a ‘diamond shape’ mark whereas the Calcutta Mint does not make any mark on the coins.
    Now the biggest question comes to the mind of the people that after all, why the Finance Ministry is reducing the size of the coins year by year and why the metal used in coins is also changing.

    Where do Printing of Security Papers, Notes and Minting take Place in India?
    When the Indian government did not have much machinery to mint more coins, then India's coins were extracted in many foreign mints and imported to India. India imported coins during 1857-58, 1943, 1985, 1997-2002. By this time the coins were made of ‘Cupro Nickel’. But after 2002, when prices of copper nickel increased, the cost of making coins was also increased, due to which the government had to use "Ferritic Stainless Steel" to make coin and the coins are currently being made from this steel. "Feritic Stainless Steel" contains 17% chromium and 83% iron.
    (Coins made of Ferritic Stainless Steel)

    coins made of ferritic steel
    image source:A FREE Online Coin Database
    Why the size of the coin is reduced?
    Actually, any coin has two values; one is called the "Face Value" of the coin and the second value is its "Metallic Value".
    Face Value of Coin: This value means; " amount written on the coin”’. If 1 rupee is written on any coin, it would be called its face value.
    Metallic value of coin: This means the monetary value of the metal used in the formation of the coin. If a coin is melted and its metal is sold in the market in 5 rupees then 5 rupee would be called the metallic value of the coin.
    Now you can easily understand why the government is shortening the coins."

    metal used in indian coins
    Let's understand this mechanism with the help of two examples:
    Suppose a goldsmith has a coin of Rs.1, if he melts this coin and sells the metal in the market for Rs.2, then he will get the profit of Rs.1. The reason behind his profit is that he lost just 1 rupee while he got 2 rupee after selling the metal of the coin.

    1 rupee coin
    Likewise, if all the peoples started this minting process then all the coin will vanish from the market which will be very challenging situation for both the government and economy. This is the reason that the government tries that the metallic value of any coin should remain less than its face value so that people do not get encourage to melt the coin because they will have to bear the loss. As example: If a goldsmith melted the coin of Rs.2 (face value) and if the metal sold in the market worth only Rs.1 (metal value), in such condition, the goldsmith will have to bear the loss of 1 rupee. So in this situation he will not get encouragement for melting the coins.
    Therefore, in order to maintain the availability of coins in the market, the government keeps decreasing the size of the coin every year and uses cheap metal to make them.
    Note: In India, goldsmith milted old coins in the formation of silver ornaments hence these coins are not seen in the market today. It is also reported in the news that the old coins of India are smuggled into Bangladesh because these coins are used in the formation of blade.
    (These old coins are milted by the goldsmiths)

    old indian coins
    In this way you read that why there is a reduction in the size of coins and the change in metals in India. Hopefully you have understood the reasoning behind this.

    How currency and coins are circulated in the Indian economy by the RBI

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