How is money printed by RBI and circulated?

RBI is the sole authority in INDIA responsible for printing, minting and distributing rupees.The Reserve Bank of India (RBI) owns a printing press for paper notes and a mint for coins. RBI decides based on inflation and demand for cash, that how much money has to be printed. (Demand for cash is decided by how much paper money and coins people use in India as opposed to debit cards or other electronic transfers of money).

The printing of money is also assisted by many factors such as monetary policy (which sets the basic interest rate) and statistics on financial information(exchange rates with foreign currency, investment and savings).

printing-moneyAfter rupees are printed and minted, the Reserve Bank of India sends them to the 18 regional offices. These offices distribute them to commercial banks, and from there they reach the public through public/private banks and ATM withdrawals. But only 18 regional offices cannot cover such a big nation like INDIA. So the solution to this problem is currency chest.

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Currency chests are stocks in commercial banks around India where the RBI puts rupees for local distribution, so that circulation is not limited to the 18 cities where the RBI has regional offices. RBI maintains currency chests of its own at treasuries and branches of the banks at all important centres. The currency notes printed at the press flow to the RBI offices and from the RBI office to these currency chests before they reach the public.

The same is for coins which are minted in 4 mints then taken to 4 mint related RBI offices from where they are taken to currency chests to distribute in the market.

In short distribution of notes and coins throughout the country is done through designated bank branches, called chests. Chest is a receptacle in a commercial bank to store notes and coins on behalf of the Reserve Bank. Deposit into chest leads to credit of the commercial bank’s account and withdrawal leads to debit.

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Demand for currency depends on how many people are using cash rupees as opposed to checks and debit or credit cards. The RBI estimates this using economic growth rates, the replacement rate (how many worn and dirty notes and coins are being destroyed) and stock requirements (how many physical rupees the government and commercial banks must have on hand).

The RBI also routinely takes worn and dirty notes out of circulation. When rupees reach the RBI, employees evaluate them using quality standards. Some are put back in circulation, while worn and dirty notes are incinerated and replaced with new notes, and coins are melted down at the mint and replaced with new rupee coins.

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The above process of printing and distributing is performed in every country by the country’s respective central government bank or an organization specifically made for this task.

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Harsh

Harsh is a curious writer who loves to explore his surroundings. There are many websites who provide answer to people queries but no single website alone resolves the curiosity of people. Curious Mind Box is an initiative to resolve the curiosities and answer every What, How and Why question that comes into your mind.

4 thoughts on “How is money printed by RBI and circulated?

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