RBI to issue ~200 notes soon

The government on Wednesday gave its go ahead to the Reserve Bank of India (RBI) to issue ~200 notes, which are expected to ease the pressure on lowerdenomination currency bills.

The RBI might issue the notes by the end of August.

Introduction of currency notes is done by a central bank based on an assessment of inflation, economic growth, replacement of soiled banknotes, reserve stock requirements, the need to combat counterfeiting and, most importantly, to facilitate ease of transactions for the common man.

The optimal system of currency denominations is worked out on the basis of minimising the number of denominations needed for offering exact change.

According to researchers, for providing exact change, optimal denominations should proceed in powers of three. But this is not possible in the decimal system, and hence no central bank has been able to follow this. Instead, many countries have adopted a near variation of the international standard of the Renard Series (named after French Army engineer, Colonel Charles Renard), which divides the interval of 1 to 10 into 5, 10, 20, or 40 steps. This is also called the “preferred number” series, which leads to a geometric sequence. For practical purposes, the ratio works out to be 1:2, or 1:2.5 between adjacent denominations, which means the next currency denomination should be twice or two and a half times of the preceding one. This is also closest to the rule of power of three that a central bank can follow. Hence, after ~100 notes, there should be ~200 notes, a logical but missing link.

With the introduction of the new notes, India will have currency denominations of 1, 2, 5, 10, 20, 50, 100, 200, 500 and 2000.