In other words, RBI and the banking system effectively subsidize the use of cash as a platform for users, which is pretty much everyone.Īt the beginning of 2013-14, total currency in circulation amounted to ₹ 11.8 trillion. This, however, doesn’t mean that the use of cash does not incur a cost-for there is significant cost to printing, maintaining and securing currency, which is currently borne by RBI. There is a chance of damage or mutilation, of course, but in such cases it is easy to exchange the said mutilated currency at a bank. The specialty with cash is that neither the buyer nor the seller incurs a direct cost of handling cash, apart from possibly the risk of theft, which tends to get discounted since it is a rare event. With the finance ministry backing easier cashless payments, it is possible that we will have an easier to use, but still secure, technological platform for payments, but that needs to be funded, and that funding might be in terms of an interchange fees.
Images of indian money bundles free#
Bank payments (NEFT/RTGS) are free in that they don’t necessarily impose a monetary transaction charge (depends upon the bank), but the cumbersome process makes them unviable for small payments.
Using a credit card, for example, results in interchange fees charged by the credit card companies from the seller. The issue with moving away from cash transactions is that alternate platforms (such as credit or debit cards, or mobile payments) require a technological platform that imposes transaction costs, which are typically borne by a buyer. In his budget speech earlier this year, finance minister Arun Jaitley called for a move away from cash-based transactions. Even in India, the use of credit and debit cards, and electronic payments (by means of National Electronic Funds Transfer, or NEFT, or Real Time Gross Settlement, or RTGS, system) are on the rise. In the US, credit cards have been prevalent for decades now, even for small payments. In Kenya, for example, mobile payments account for transactions amounting to at least 25% of that country’s gross domestic product (GDP) as of 2013. Globally, there’s a trend of moving away from cash-based transactions. While that gives us the unit cost of printing a note, what would be interesting is to determine the total cost of maintaining India’s currency. What is the average age of Indian currency? How often are our notes retired, and what is the cost of printing? The cost of printing a currency note, based on the central bank’s reply to a Right To Information query, and the growth in overall money supply, was provided in a Mint report on 10 April.