India, one of many world’s 5 largest economies, remains to be toying with the concept of introducing plastic forex, 30 years after Australia launched a sequence of denominations and as many as 60 international locations used some type of plastic forex.
Earlier this month, the Reserve Financial institution of India’s (RBI) forex printing subsidiary invited international expressions of curiosity (EoI) for the provision of polymer substrates with embedded security measures, marking probably the most concrete step in direction of implementation because the unique proposal in 2009.
Plastic banknotes final 2.5 to 4 occasions longer than cotton paper banknotes, relying on the denomination, however they require extremely specialised biaxially oriented polypropylene derived from oil and pure gasoline, a sector straight linked to environmental points.
Polymer forex affords a chance to modernize money administration with elevated sturdiness, decreased lifecycle prices, and elevated safety. Some calculations predict it may strategy and even exceed the face worth of small-denomination banknotes, elevating issues about the price of producing them. In lots of international locations, manufacturing prices alone have been discovered to be 20-24% of the forex’s worth at low denominations.
However, proponents of plastic currencies argue that decrease trade frequency can justify greater manufacturing prices. ₹10 and ₹20 notes are topic to the very best frequency of dealing with and bodily deterioration, making their substitute prices disproportionately excessive.
Polymer notes have the potential to ship vital lifecycle financial savings on these decrease denomination notes because the ₹500 be aware has constantly been probably the most extensively circulated single be aware in India by way of each quantity and denomination for the previous 5 years, in keeping with RBI’s annual report.
Sustainability issues focus on elevated preliminary carbon emissions, plastic waste disposal, and the necessity for specialised recycling amenities. An earlier research performed by the Power and Sources Institute (TERI) on behalf of the RBI additionally discovered that extending the circulation life is useful because the variety of banknotes wanted to be manufactured and transported decreases over time, and polymers have a smaller general carbon footprint than paper.
major question
The logic behind the RBI’s newest transfer to revive plastic currencies comes at a time when the nation is quickly turning into much less cash-intensive and digital transactions are increasing quickly. Whereas the positions of each the RBI and the federal government could appear justified, some questions stay unanswered.
Why India wants to speculate closely in plastic forex is most significantly as a result of fluctuations in petrochemical costs as a result of international turmoil attributable to the West Asian disaster. As a result of the polymer is derived from polypropylene, fluctuations in oil costs can improve the price of producing plastic forex over time.
India depends on imports for polypropylene, which accounts for about one-fifth of home consumption. Main home corporations comparable to Reliance Industries and Indian Oil Company are additionally enterprise large-scale capability enlargement efforts, with the intention of considerably increasing their manufacturing capability by 2030.
Second, why not at a time when digital funds are booming?At present, the Unified Funds Interface (UPI) processes greater than 24,000 billion transactions yearly, accounting for 85% of retail digital funds. Moreover, the currency-to-GDP ratio (GMV as a proportion of GDP), which hit a 20-year low of 8.7% in the course of the 2016-2017 buying and selling shutdown, has remained above 11%, reflecting structural modifications in fee habits.
The financial system dichotomy or cash demand paradox, a time period coined by the RBI, confirmed that the UPI has grown exponentially amid a gradual improve in forex in circulation, reaching over Rs 4.1 lakh crore by 2025-26, towards Rs 1.6-1.7 lakh crore a decade in the past. This will clearly be attributed to the casual sector and low digital acceptance in rural areas with poor digital connectivity.
price curve
In India, knowledge on forex printing prices by denomination isn’t out there, however the RBI supplies the price of printing securities as a part of the earnings assertion in its annual report, exhibiting that the whole expenditure on forex printing was Rs 5,110 crore in 2023-24, Rs 6,373 crore in 2024-25 and Rs 4,875 crore in 2025-26.
Moreover, India reportedly spends near Rs 5 billion yearly on replenishing and sustaining its banknote inventory and destroys 20-24 billion soiled notes (largely of low denominations) yearly underneath the Clear Banknote Coverage.
Polymer banknotes are usually 30-60% dearer to supply than conventional cotton paper banknotes as a result of the usage of particular polypropylene substrates, clear home windows, superior anti-counterfeiting options, and sophisticated printing methods.
Along with these prices, ATMs, forex sorters, merchandising machines, and banknote processing gear might require reconditioning to deal with polymer banknotes. Industrial banks, money logistics corporations, and retailers will incur transition prices throughout preliminary deployment.
analysis paper worldwide financial journaldiscovered that the associated fee virtually doubled in direction of the demonetisation interval (2016) as two new sequence of banknotes (₹500 and ₹2000) have been printed and issued to exchange all earlier sequence of the identical denomination in circulation. Since demonetisation, ₹200 denominations have additionally been issued, rising the price of printing forex notes.
The paper stated the common price of every printed be aware adopted the same sample, rising from £1.5 earlier than 2016 to £2.7 throughout demonetisation, returning to pre-demonetism ranges in 2019. This implies that the marginal price of printing cash in India doesn’t essentially lower with a rise in provide.
historic perspective
RBI first mooted the introduction of ₹100 million polymer notes in 2009. In 2012, the Ministry of Finance had knowledgeable Parliament that it might pilot the forex notes in 5 cities – Kochi, Mysuru, Jaipur, Bhubaneswar and Shimla, chosen preserving in thoughts their numerous weather conditions. The primary goal was to increase the shelf life, however technical challenges triggered the challenge to be postponed.
In 2013 and 2014, Parliament was knowledgeable that the federal government remained dedicated to the pilot challenge, however the challenge subsequently fell into obvious silence as a result of demonetization and related prices, together with printing new sequence.
What’s subsequent?
Folks’s Financial institution of India Observe Mudlan is now inviting eligible home and worldwide producers to submit bids by August 18 for manufacturing opaque polymer substrate sheets designed for banknote printing. RBI Governor Sanjay Malhotra confirmed final month that polymer currencies are being actively thought of once more.
As India strikes in direction of a digital rupee and deeper monetary digitization, long-term demand for bodily money is prone to develop slowly, lowering the financial justification for large-scale polymer adoption.
A forex is environment friendly provided that its manufacturing and upkeep prices characterize a small proportion of its buying energy. It is not a matter of selecting paper or plastic. However it’s about designing a better and extra environment friendly money ecosystem in an economic system the place, regardless of the UPI revolution, greater than Rs 41,000,000 crore of forex remains to be in circulation.
