Combatting counterfeiting
The State Bank’s decision to replace currency notes in circulation is certainly commendable, not least because it will help make large amounts of ‘hidden’ money identifiable and remove counterfeit currency from circulation. The designs of the current notes in circulation date back to the mid-2000s, which is not in itself a problem — the current US$100 note entered circulation in 2013, about 17 years after its predecessor — but the last decade has also seen several new security features for currency notes become commonplace, while many of the rupee’s once cutting-edge features are now easily cloned by counterfeiters.
Some countries have also introduced polymer banknotes, which are cheaper and can accommodate even more new safety features. Canada, Australia and the UK are among the countries that use polymer banknotes for all their cash. Although India shelved plans to do the same citing concern over how the plastic notes would react to the subcontinent’s summer temperatures, the UAE’s recent decision to replace several banknote denominations with polymer currency would suggest melting cash can be avoided if production quality standards are observed.
It is also important to reject calls to introduce new high-value notes and instead consider eliminating the Rs5,000 note. The widespread availability of digital wallets and payment platforms, coupled with the government’s desire to digitise the economy, means the supply of large banknotes should be limited. Large-scale physical cash transactions for legitimate business are entirely unnecessary, unless the parties want to avoid the government’s radar.
The State Bank has also made clear that the adoption of new notes would be gradual, and not like India’s disastrous “demonetisation” exercise in 2016, which caused negative growth for one quarter and lesser effects for almost three years. Gradual adoption — at least one year for old notes to be exchanged, destroyed and replaced — would ensure honest folks do not suffer, while still creating a deservedly difficult situation for illegal hoarders who cannot explain where their billions came from.
Published in The Express Tribune, February 1st, 2024.
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