The difference between the face value of a currency note and the actual cost of producing it is called “seigniorage”. The difference between the face value of a currency note and the actual cost of producing it is called “seigniorage”.

Two years after demonetisation, the volume as well as value of new banknotes printed by the Reserve Bank of India (RBI) has surged, compared to that in the years preceding the scrapping of the outstanding Rs 500 and Rs 1,000 denomination currency notes on November 8, 2016.

According to the RBI’s latest annual report released on Thursday, the total supply of banknotes by Bharatiya Reserve Bank Note Mudran Pvt. Ltd (BRBNMPL) and Security Printing & Minting Corporation of India Ltd (SPMCIL) – the two companies that print currency on behalf of the central bank – amounted to 2,919.1 crore pieces in 2018-19. This was higher than the number of pieces supplied in previous years, including 2016-17, when demonetisation happened.

While the total face value of the new notes supplied in 2018-19, at Rs 7.26 lakh crore, was way below the Rs 13.39 lakh crore for 2016-17 – when RBI had to take recourse to printing of Rs 2,000 denomination currency as part of its immediate re-monetisation exercise – it was still higher than the levels during the pre-demonetisation years (see table).

In other words, despite the Modi government’s emphasis on digital payments and a less-cash economy, the official printing presses are churning out more currency notes than before, both in volume and value terms. The value of new notes supplied by BRBNMPL and SPMCIL grew by 16.1 per cent in 2018-19, more than the 11.2 per cent increase in India’s nominal GDP. This, notwithstanding the supply of Rs 2,000 currency notes registering a drastic fall from 350.4 crore pieces in 2016-17 to 15.1 crore in 2017-18 and a mere 4.7 crore pieces in the last fiscal.

How much it costs the RBI to print (Source: RBI Annual Reports)

Printing Cost (Rs crore) Supply of notes (crore pieces) Value of new notes (Rs crore) 2014-15 3762 2365.2 430404 2015-16 3421 2119.5 383251 2016-17 7965 2904.3 1338851 2017-18 4912 2500.3 625570 2018-19 4811 2919.1 726379

As a result, the share of Rs 2,000 notes in the value of the total supply of new currency plunged from 52.3 per cent in 2016-17 to just 1.3 per cent in 2018-19. Yet, the outstanding value of banknotes in circulation at the end of March 2019, at Rs 21.109 lakh crore, was more than the corresponding Rs 16.415 lakh crore level of March 2016 pre-domonetisation.

The other interesting aspect emerging from the RBI’s annual report is the declining cost of printing new banknotes. In 2016-17, the central bank spent Rs 7,965 crore on the printing of 2,904.3 crore note pieces. But in 2018-19, the expenditure was only Rs 4,811 crore on a higher supply of 2,919.1 crore pieces. The reason for this was because of lesser number of Rs 2,000 denomination notes getting printed and also reduction in unit printing costs.

In a reply to a Parliament question on July 9, the Union minister of state for finance Anurag Singh Thakur stated that the selling price of currency printed by BRBNMPL came down from Rs 4.18 per piece in 2017-18 to Rs 3.53 in 2018-19 for Rs 2,000 notes. A similar downward revision in the rates per piece took place from Rs 2.39 to Rs 2.13 for Rs 500, from Rs 2.24 to Rs 2.15 for Rs 200, from Rs 1.50 to Rs 1.34 for Rs 100, from Rs 0.83 to Rs 0.82 for Rs 50 denomination notes.

The difference between the face value of a currency note and the actual cost of producing it is called “seigniorage”. Thus, if it costs only Rs 3.53 to print a Rs 2,000 note, the resulting seigniorage is theoretically a profit accruing to the central bank from its monopoly over the issuance of the country’s currency.

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