Commodity money and coinage in India

Detail

1. Commodity money: the earliest money

• Commodity money is money that has value of its own as a good. It can be eaten, used or worn, apart from being used to pay.
• Early Indian examples were grains and cattle.

• Next came coins of gold, silver and copper. The metal in these coins was itself worth something.

• Class 10 says Indians used grains and cattle "since the very early ages".

• Class 10 also says the metallic-coin phase lasted "well into the last century" (the 20th century).
• Why commodities gave way to coins:
• Grain rots and cattle die. Neither can be split into equal small parts.
• Metal lasts. It is easy to carry and easy to divide.
• A ruler's stamp showed people the coin's weight and purity, so they did not have to weigh and test it each time.

2. Punch-marked coins: the kārṣhāpaṇa

• Kārṣhāpaṇa (or paṇa) was an ancient Indian coin made of gold, silver, copper or their alloys (metals mixed together).
• Symbols were punched onto the coin. These symbols were called rūpas.

• NCERT dates them to around the 6th century BCE. Class 10 shows punch-marked coins that "may be 2500 years old".

• RBI's account:

• Punch-marked coins were issued between the 7th-6th century BC and the 1st century AD [2].
• They were mostly silver [2].
• They get their name from how they were made: each symbol was punched with a separate punch [2].
• Merchant guilds issued them first. States issued them later [2].
• RBI divides them into two periods: the Janapada period (small local states) and the Imperial Mauryan period [2].

• Common motifs were the sun, animals, trees, hills and geometric designs [2].

• The word still lives on: paṇam in Tamil, Telugu and Malayalam, and haṇa in Kannada, both mean money.

3. What a paṇa could buy: Arthaśāstra examples (Class 7)

• Salary in grain: an annual salary of 60 paṇas could be paid instead as 1 āḍhaka of grain (about 3 kg) per day. That is enough for four meals.
• Worked example: what one paṇa was worth in grain
• Grain in a year = 365 × 3 kg ≈ 1,095 kg.

• 1 paṇa ≈ 1,095 ÷ 60 ≈ 18 kg of grain, or about 6 āḍhakas.

• Civic-duty fine: failing to help a neighbour cost a fine of 100 paṇas.

• 100 ÷ 60 ≈ 1.67 years of salary.
• This shows that the state took civic duty seriously.

4. Coinage and minting

• Coinage means coins that rulers issued in precious metals or alloys. These were among the earliest forms of money.

• Coins of powerful rulers came to be accepted across kingdoms. This helped trade between regions.

• Minting is the process of making coins. A mint is the place that makes a nation's coins.

• In ancient times, rulers fully controlled minting and issue.

• Obverse and reverse:

• The obverse is the "head", the side with the main design. The reverse is the "tail".
• Motifs included animals, trees, hills, kings, queens and deities.

• Example: the Chalukyas of Kalyana put Varaha (an avatar of Viṣhṇu) on one side and a three-tiered royal parasol on the other.

• Roman gold coins have been found at Pudukkottai (Tamil Nadu) and in Kerala.

• Romans paid gold for Indian goods such as spices and textiles.
• So scholars conclude that India's maritime trade was in India's favour: gold flowed into India.

5. Later dynasties (beyond NCERT)

• Indo-Greek coins (2nd century BC to 2nd century AD):
• They show Greek gods and goddesses, along with portraits of the rulers who issued them [2].

• Historians have rebuilt Indo-Greek history almost entirely from these coins [2].

• Kushan coins:

• The earliest Kushan coinage is linked to Vima Kadphises [2].
• Their images came from Greek, Mesopotamian, Zoroastrian and Indian mythology, including Shiva, Buddha and Kartikeya [2].

• Kushan gold coins influenced later coins, especially those of the Guptas [2].

• Gupta coins (4th-6th centuries AD):

• They show the king on the obverse and a deity on the reverse [2].
• The deities were Indian and the writing was in Brahmi [2].

• They marked events such as succession to the throne and horse sacrifices (Ashvamedha) [2].

• Sher Shah Suri's rupiya: the ancestor of the rupee

• Sher Shah Suri (ruled 1540-1545 AD) issued a silver coin called the Rupiya, weighing 178 grains [3].

• RBI calls it "the precursor of the modern rupee". It stayed largely unchanged until the early 20th century [3].

• Tri-metallism means a system with standard coins in three metals. RBI credits it to Sher Shah, not to the Mughals [3].

• Gold: Mohur (169 grains) [3]
• Silver: Rupiya (178 grains) [3]

• Copper: Dam [3]

• Mughal contribution: the Mughals made coinage uniform across the whole empire [3].

• Under Aurangzeb, coins followed a standard format: the ruler's name, the mint and the date of issue [3].

6. Token money and Gresham's law

• Token money is money whose face value (the value written on it) is higher than the value of its metal.
• People accept it only because the issuer supports it.

• Modern coins and notes are token money.

• Muhammad bin Tughlaq's token currency (c. 1329-30). Class 10 shows a photo of a Tughlaq coin.

• He issued brass and copper tokens at the face value of silver coins.
• Brass and copper were cheap, and the tokens were easy to copy. People forged them in huge numbers.
• The tokens lost value and had to be withdrawn.

• Lesson: token money works only if the issuer can control its supply.

• Gresham's law: "bad money drives out good"

• Sometimes two forms of money circulate at a fixed legal ratio (an exchange rate between them set by law).
• People hoard or melt the undervalued ("good") money, whose metal is worth more than its legal value.

• The overvalued ("bad") money is the one that stays in circulation.

• Worked example:

• The law says 1 silver coin = 1 copper token.
• The silver in the coin can be sold for ₹120. The copper token's metal is worth ₹5.
• People spend the tokens and keep or melt the silver coins.
• Result: only tokens circulate. This is what happened under Tughlaq.

7. The anna system and decimalisation

• Old units: 1 rupee = 16 annas = 64 pice = 192 pies.
• So 1 anna = 4 pice = 12 pies, and 1 pice = 3 pies.
• Class 7: in 1947, one anna could buy a dozen bananas.

• Class 7 shows a quarter anna (1918), a half anna (1942), an anna (1943) and a paisa (1945).

• Decimalisation means dividing a currency into units of 10 or 100.

• On 1 April 1957, the rupee was divided into 100 naye paise.

• The word "naye" (new) was dropped in 1964.

• Worked example: why decimal units are easier

• Old system: 1 anna = 1/16 rupee = 6.25 naye paise. Calculations need fractions.
• New system: ₹3.45 is simply 3 rupees and 45 paise.

8. Coins today: law and institutions

• Material: coins are alloys made mostly of iron, with chromium, silicon and carbon in exact amounts. This alloy is ferritic stainless steel.
• Design: different denominations have different sizes, and each coin carries Hindi and English.

• Special coins mark national events. Example: the coin for 75 years of Independence (2021).

• The Coinage Act, 2011 is the current law on coins.

• It combined four older laws into one and repealed them: the Metal Tokens Act, 1889, the Coinage Act, 1906, the Bronze Coin (Legal Tender) Act, 1918 and the Small Coins (Offences) Act, 1971 [4].
• Lok Sabha passed it on 25 March 2011 and Rajya Sabha on 11 August 2011 [4].
• The Government decides each coin's denomination, size, design, metal mix and standard weight [4].
• No coin can have a denomination above ₹1,000 [4][6].
• Making coins without authority, or melting or destroying coins, is punishable with jail and a fine [4].

• The government can open or close mints, managed by the Ministry of Finance [4].

• Who makes coins and who issues them:

• Under the Act, "Mint" means the Security Printing and Minting Corporation of India Ltd (SPMCIL), or another body set up or authorised by the government [5].
• SPMCIL owns four mints, at Mumbai, Hyderabad, Kolkata and NOIDA [6].
• Coins are minted by the Government of India but put into circulation only through the RBI, under Section 38 of the RBI Act [6].
• Contrast with banknotes: the RBI issues banknotes, but the Government issues coins.

• All coins minted under the Coinage Act, 2011 and issued by the RBI remain legal tender [6]. Legal tender is money that the law says must be accepted as payment.

• Link to Tughlaq's lesson: today the state controls supply through a government monopoly on minting and punishment for counterfeiting and melting. This is the control Tughlaq lacked.

Prelims Hooks

• Kārṣhāpaṇa/paṇa is a punch-marked coin, mostly silver [2]. Its punched symbols are called rūpas.
• Punch-marked coins were first issued by merchant guilds, and later by states [2]. They were not issued only by kings.
• Gupta coins: king on the obverse, Indian deity on the reverse, writing in Brahmi [2]. The Kushan gold coins came earlier and influenced them [2].
• Sher Shah Suri's silver Rupiya (178 grains) is the forerunner of the rupee. Tri-metallism (Mohur–Rupiya–Dam) came from Sher Shah, not the Mughals [3].
• Gresham's law: bad (overvalued) money drives out good (undervalued) money. Tughlaq's brass and copper tokens (1329-30) failed because people forged them.
• Decimalisation: 1 April 1957 (naye paise). "Naye" was dropped in 1964. Before that, ₹1 = 16 annas = 64 pice = 192 pies.
• Coins are issued by the Government of India (Coinage Act, 2011) and distributed through the RBI (Section 38, RBI Act) [4][6]. Trap: the RBI does not mint coins.
• SPMCIL's four mints: Mumbai, Hyderabad, Kolkata, NOIDA [6]. Highest coin denomination allowed: ₹1,000 [4][6].
• Roman gold coins found at Pudukkottai and in Kerala point to a trade surplus for ancient India.

Mains Points

• Trust and supply control are what give money its value.
• Commodity money carried its own value in its metal. Token money depends entirely on the issuer's credibility.
• Tughlaq's failure shows that fiat money breaks down when counterfeiting goes unchecked.

• The same logic lies behind today's legal monopoly on minting, penalties for counterfeiting and melting [4], and anti-counterfeiting as a stated aim of the 2016 demonetisation (Class 12 box).

• Coins as a historical source and a sign of state power.

• Coins let historians rebuild dynasties such as the Indo-Greeks [2].

• Coins accepted across kingdoms, and Mughal uniformity [3], show how one standard currency joins markets together, much like a single national payment system (UPI) does today.

• Coins as evidence of trade.

• Roman gold at Pudukkottai and in Kerala shows that ancient India earned from exports.

• This is useful for GS-III answers on India's historic trade surplus and on how the balance of payments is settled in gold versus trust-based money.

• Institutional design.

• Coin issue is split: the Government mints and holds the liability, and the RBI distributes [6].
• Banknotes are issued by the RBI.
• This split is a good example of fiscal and monetary roles sharing the job of managing currency, and of seigniorage (the profit from issuing money) going to the government.