Discontinuation of Five-Rupee Coins in India

The Reserve Bank of India (RBI) plays important role in managing India’s monetary policy. This includes decisions on currency issuance and the types of coins in circulation. Recently, there has been speculation regarding the discontinuation of the five-rupee coin. This article explores the current status and reasons behind the changes in five-rupee coin circulation.

Current Circulation of Coins

In India, coins ranging from one rupee to twenty rupees are currently in circulation. Reports indicate that new denominations of thirty and fifty rupee coins may have been introduced. However, the five-rupee coin has garnered attention due to claims of its potential discontinuation.

Types of Five-Rupee Coins

There are two primary types of five-rupee coins in circulation. One is made of brass, while the other is composed of a thicker metal. The thicker metal coins have seen a decline in prevalence. Currently, only brass five-rupee coins are commonly found in the market.

Reasons for Discontinuation

The discontinuation of the thicker five-rupee coin is largely attributed to economic factors. The metal used for these coins can be melted down and repurposed into items worth more than five rupees. For instance, a single five-rupee coin can be transformed into four to five blades, which can be sold for a higher total value.

Production Costs vs. Face Value

A key principle in currency production is that if the cost of producing a coin exceeds its face value, it will be removed from circulation. The RBI has adhered to this rule. For example, if a five-rupee coin is melted down to produce blades that can be sold for a profit, it becomes economically unviable to continue its circulation.

Smuggling Concerns

Another reason for discontinuing the old five-rupee coin is related to illegal smuggling activities. The thicker coins were often exported to Bangladesh, where they were melted down into razor blades. This illicit trade reduced the availability of five-rupee coins within India.

Changes in Coin Design

In response to smuggling issues, the RBI altered the design and metal composition of the five-rupee coin. The new coins are thinner and made with cheaper materials. This change ensures that even if the coins are smuggled, they cannot be repurposed as profitable razor blades.

Government and RBI Coordination

The RBI operates under the guidance of the Government of India. Any changes in currency issuance, including the discontinuation of specific coins, require governmental approval. This collaborative approach ensures that monetary policy aligns with national interests.

Public Perception and Future Implications

The public reaction to the potential discontinuation of the five-rupee coin remains mixed. While some support the move due to economic rationale, others express concern over the convenience of currency transactions.

Conclusion

The future of the five-rupee coin remains uncertain as the RBI continues to assess its viability. The interplay between economic factors and smuggling concerns will likely shape future decisions regarding currency circulation.

Questions for UPSC:

1. Critically analyse the impact of currency production costs on the economy.
2. What are the implications of illegal currency smuggling on national security? Explain.
3. Comment on the role of the Reserve Bank of India in shaping monetary policy.
4. Explain the significance of coin design changes in combating smuggling activities.

Answer Hints:

1. Critically analyse the impact of currency production costs on the economy.

1. High production costs can lead to the discontinuation of certain currency denominations.
2. When production costs exceed face value, it creates economic inefficiency.
3. Discontinuation can affect liquidity in the market, influencing consumer behavior.
4. It may lead to increased reliance on other forms of currency, including digital payments.
5. Overall, it impacts inflation rates and monetary policy effectiveness.

2. What are the implications of illegal currency smuggling on national security? Explain.

1. Currency smuggling undermines the integrity of the national currency system.
2. It can fund illegal activities and organized crime, posing a threat to law and order.
3. Loss of control over currency circulation can weaken the government’s economic authority.
4. Smuggling can lead to economic instability and loss of revenue for the government.
5. It may also strain international relations, particularly with neighboring countries.

3. Comment on the role of the Reserve Bank of India in shaping monetary policy.

1. The RBI formulates and implements monetary policy to maintain price stability.
2. It regulates the supply of money and manages inflation through interest rates.
3. The RBI coordinates with the government on currency issuance and economic strategy.
4. It plays important role in maintaining financial stability and confidence in the economy.
5. Through its policies, the RBI influences investment and consumption patterns in the economy.

4. Explain the significance of coin design changes in combating smuggling activities.

1. Changes in coin design can reduce the intrinsic value of coins, deterring smuggling.
2. New designs can make it difficult for smugglers to repurpose coins for profit.
3. Thinner coins with cheaper materials decrease their attractiveness for illegal export.
4. Design changes can help maintain the supply of coins within the domestic market.
5. Such measures enhance the overall security and integrity of the currency system.