The Reserve Bank of India (RBI) is poised to introduce durable polymer banknotes, a strategic move aimed at enhancing the longevity of currency, reducing production costs, and efficiently managing the escalating demand for cash across India.
Key Points
- The Reserve Bank of India (RBI) is reviving plans to introduce polymer banknotes to meet increasing currency demand and improve note durability.
- The decision was influenced by the perceived advantages in production cost and the longer shelf life of polymer notes compared to traditional paper currency.
- A pilot project for plastic banknotes is anticipated to be announced shortly, with ATMs being enabled to dispense these new notes.
- The move aims to reduce the high disposal rate of soiled banknotes, which reached 23.8 billion pieces in FY25, predominantly Rs 500 and Rs 100 denominations.
- Despite a surge in digital payments, currency in circulation continues to rise, reaching a record Rs 42.86 trillion as of May 15, indicating sustained demand for cash.
The Reserve Bank of India (RBI) has revived the idea of printing polymer banknotes for circulation to meet the surge in demand for currency notes in the last few years.
According to multiple sources aware of the development, the issue of introducing polymer or plastic notes was discussed in the last two board meeting of the central bank, held in Patna and Mumbai.
Advantages of Polymer Notes
The decision has been taken in view of perceived advantages in the cost of production and the higher shelf life of such currency notes.
A pilot project involving plastic banknotes for public use is expected to be announced soon.
"There are clear advantages in the cost of production of such notes compared to the paper notes currently being used.
"Moreover, automated teller machines (ATMs) would be enabled to dispense polymer-based notes.
"We have the wherewithal to do this now," said one of the sources familiar with the board's deliberations.
The expenditure incurred on securely printing paper currency notes during 2024-25 (FY25) was Rs 6,372.8 crore as against Rs 5,101.4 crore during the previous year, mainly due to increase in indent for printing of banknotes, the RBI had said in its annual report for FY25.
Addressing Soiled Banknotes and Rising Demand
Increasing the shelf life of bank notes was an equally important consideration for the decision to go polymer, as the disposal of soiled bank notes has remained high.
Data shows 23.8 billion pieces of soiled banknotes were disposed in FY25, rising 12.3 per cent from 21.24 billion pieces in the previous year.
Most soiled notes were of the Rs 500 denomination, followed by Rs 100 banknotes.
Currency in circulation (CiC) continued to rise at a sharp pace, increasing 11.5 per cent year-on-year to touch Rs 42.86 trillion — a record high — as on May 15.
In absolute terms, CiC expanded by Rs 1.15 trillion during the first one and a half months of FY27, indicating sustained demand for cash despite continued growth in digital payments.
Challenges with Lower Denominations and Coins
The sources said the high demand for lower denomination bank notes like Rs 10, Rs 20 was evident in the last few years.
However, the share of such notes remained low in the overall bank notes in circulation.
For example, in value terms, the Rs 10 denomination remained at 0.7 per cent in the last two years while the Rs 20 banknote was just 0.8 per cent.
While the Indian central bank made a conscious effort to popularise the use of coins, that effort has not yielded the desired results.
The supply of total number of coins increased from about 1.2 billion in FY24 to 1.5 billion in FY25, of which the Rs 5 denomination coin constituted 800 million, followed by 400 million Rs 20 coins.
Past Attempts and Global Adoption
In 2012, the then government had decided to introduce one billion pieces of Rs. 10 banknotes on polymer substrate on a field trial basis in five cities.
The primary objective of the introduction of plastic notes was to increase their shelf life, and not to combat counterfeiting, the United Progressive Alliance (UPA) government had noted.
The project was, however shelved due to technological challenges.
Things have changed over the past decade or so, with sources emphasising that the said technology is no longer a challenge, and solutions have been arrived at in order to ensure that ATMs can identify such notes.
There are about 60 countries in the world which have introduced polymer banknotes in circulation so far.
Australia was the first one to introduce polymer banknotes, starting with a ten dollar note in 1988, followed by Singapore, Indonesia, Thailand, Malaysia. Romania was the first European country to use a plastic note back in 1998, while Canada introduced similar notes in 2011.
US dollar notes are made of a specialised cotton-linen blend material.
