The way Indians utilise money has changed dramatically throughout the millennia since cash first appeared. After a year after demonetisation, the push towards a digital economy continues, but the passion for cash endures. From kaudis and gold coins to paper notes and current digital techniques, India’s payment history is fascinating. As the RBI introduces the Rs 50 and Rs 200 notes, we look back at the growth of the Indian currency system.
Early forms of currency
Cowrie shells, which are abundant in the Indian Ocean, were among the world’s first kinds of money. They were commonly known as kaudi in India and were utilised in some places such as Odisha until the early 1800s.
Coinage was initially utilised in India around the seventh or sixth centuries BC.
These ‘punch-marked’ coins were originally minted in the Mahajanapada kingdoms of the Indian Iron Age and lasted until the end of the Imperial Mauryan era.
The Indo-Greek rulers then introduced new types of coins, influencing Indian printing in the next centuries. From the first to the third century of CE, the Kushan Empire started to produce gold coins that included mythical deities. In 320-470 CE, the empire of Gupta produced the most gold coins in Indian history, and is sometimes called the “golden era.” Coins continued to take on many shapes through the later Indian dynasties — from the Northern empires of Rajput and Mughal to the Southern kingdoms of Marathah and Vijayanagara.
The country’s first currency, the Rupee, was introduced by Sher Shah Suri during his five-year reign from 1540 to 1545. The Rupee is considered to be the ancestor of the modern-day rupee. When Suri defeated Humayun and seized control of the Mughal Empire in 1540, he instituted a new civic and military government that minted a silver currency known as the Rupiya, which remained in circulation for the duration of the Mughal Period and the reign of the Marathas.
Aside from a few brief periods under the British Raj, the Rupiya continued to reign supreme as India’s official currency, despite efforts by the East India Company to adopt the Sterling Pound as early as the 1600s. In contrast, the coins minted in the provinces of Western India (Bombay and Surat) and South India (Madras) were different in both design and metrology from those issued in the northern provinces.
When the English, who were by then the dominating force in the nation, adopted the Currency Act of 1835, it was only the early nineteenth century that India was able to issue a standard coinage. The traditional Indian motifs and symbols were replaced with the effigy of King William IV, which was itself replaced by the picture of Queen Victoria from 1840 onwards on the newly-designed coins. However, it was not until after the Indian Rebellion of 1857, also known as the Sepoy Mutiny, that the British officially recognised the Rupee as the official currency of colonial India as the official currency of the British Empire.
When cash became king
Initially, the worth of coins was determined by the precious metal used to manufacture them. This created a difficulty for sovereigns that lacked the necessary gold or silver reserves to avert a sharp depreciation of their currency. This issue was resolved by paper money, which carried a commitment to pay its holders the equal amount in gold or silver from the public treasury.
It soon became irrelevant that paper money lacked any physical backing, and it was simply accepted as a medium of trade for goods and services. However, whereas Genghis Khan popularised paper currency in Asia as early as the 11th century, it acquired popularity in India until a few centuries later.
In the late 18th century, silver and gold coins were phased out in favour of hundis, bonds, and shares, and India saw the introduction of paper money for the first time. Private and semi-government Presidency banks were both capable of printing notes — the General Bank of Bengal and Bihar (1773–75) and the Bank of Hindostan (1770–1832) were among the first issuers of paper money in India.
In 1861, the Government of India adopted the Paper Currency Act, granting it a monopoly over note issuance and prohibiting private and Presidency Banks from issuing notes. Following that, the ‘Victoria Portrait Series’ of notes was introduced in denominations of Rs. 10, 20, 50, 100, and 1,000.
The Indian Independence Movement quickly gained momentum, and the Swadeshi Movement, its nationalist and economic policy wing, had a significant influence on Indian banking. From 1906 through 1911, merchants and politicians created many local banks for the Indian population – Canara Bank, Bank of India, Corporation Bank, Indian Bank, and Bank of Baroda, to mention a few.
Soon afterwards, the British Empire faced a severe silver shortage following the start of World War I in 1914, and therefore began producing paper currency in lower values (one and two Rupees) formerly only available as coins. Meanwhile, India received its first printing press in Nashik in 1928, and the country quickly began manufacturing money.
The Indian economy was devastated by the First World War, necessitating an ultimate monetary authority. Following the recommendations of the Royal Commission on Indian Currency and Finance (1926), the Central Legislative Assembly established the Reserve Bank of India to oversee banking and note issuance throughout the country.
The RBI was established on April 1, 1935, in Calcutta (now Kolkata), with a central office in Bombay (now Mumbai). A year later, the apex bank issued fresh notes featuring the new British monarch, George VI. The first note in this series was the five rupee note, followed by Rs. 1, 2, and 10,000 notes.
The Ashoka Pillar replaced George VI’s picture on the rupee note when India became a republic on January 26, 1950. The High Denomination Bank Notes (Demonetisation) Act, 1978, did not alter this currency. The Indian Parliament banned the usage of high-denomination banknotes of Rs. 1,000, 5,000, and 10,000, which were weakening the Indian economy.
The first Mahatma Gandhi banknotes were issued in 1996. Except for the Rs 500 and Rs 1,000 notes, which were replaced following the 2016 demonetisation, these notes are still in circulation today.
Digitalization is revolutionizing the economy.
Digital wallets, which have replaced NEFT and other online payment methods, have made money transfers much easier and faster. Millions of people use e-wallets like PayU, Paytm, and MobiKwik to make personal and business financial transactions.Aadhaar-based mobile wallet BHIM App may be used to make digital payments straight from bank accounts.
Following the Narendra Modi-led government’s demonetisation move in November and December 2016, cashless transactions increased sharply — by 114 percent for mobile wallets, 88 percent for PoS, and 30 percent for mobile banking. From November 2016 to May 2017, India’s total digital transactions increased by 23% to 27.5 million. A Google-BCG research forecasts that by 2021, the Indian digital payments sector would be worth $500 billion, or 15% of the GDP.
However, in a country where pre-demonetisation currency comprised 90% of the economy, cash is still the preferred method of payment. According to RBI data, in April 2017, ATM withdrawals totaled Rs 2,171 billion, while UPI transactions totaled Rs 22,41 billion. Withdrawals rose from Rs 850 billion in November 2016 to Rs 2,262 billion in March 2017. Pre-demonetisation, this was Rs 2,223 billion and Rs 2,551 billion in October and September 2016.
Unlike digital payments, which require a constant internet connection and buyer and seller acceptance, cash is accessible for immediate offline transactions. In India, it is currently the preferred method of payment. This is unlikely to change until the country’s digital infrastructure improves to the point that any Indian, no matter where they live, can make digital transactions as readily as cash payments.
With the advent of cryptocurrencies, digital payments are changing. Decentralised and extremely secure currencies like Bitcoin, Ethereum, and Monero are rapidly gaining global appeal. While governments may take some time to adopt them as a legal currency, they are unquestionably the next stage in the lengthy development of payments.