Paper money, the rupee note and denominations

Detail

1. Why paper money came in

• The problem with coins. People used coins for everything, from buying vegetables to buying land.
• A big deal, like buying land, needed a very large number of coins.

• Carrying and storing so many coins became hard.

• Paper money: currency notes printed on paper and used for higher denominations (the face value written on a note or coin, such as ₹100). One light note can stand for a large value.

• China first. Paper money was first used in China. The earliest well-known note is the jiaozi of the Song dynasty, 11th century (beyond NCERT).
• India later. Paper money came to India in the late 18th century.

• Early private and presidency-era issuers included the Bank of Hindostan (1770) and the General Bank of Bengal and Bihar (1773) (beyond NCERT).

• What Class 7 shows:

• Uniface notes of the Bank of Bengal. "Uniface" means printed on one side only.
• A ₹10 note of the Bank of Bombay.
• Both were Presidency banks. These were the three big banks of the British presidencies (Bengal, Bombay, Madras), and they issued their own notes before 1861.

2. Why people accept a piece of paper

• Fiat money: a note is worth almost nothing as paper. People accept it because the law makes it money and they trust the issuer (Class 12 idea).
• Legal tender: a coin or banknote that the law says must be accepted to settle a debt or payment [2].
• Note-issuing law today:
• Section 22, RBI Act 1934: the RBI has the sole right to issue banknotes in India [2][5].
• The RBI's Issue Department, kept fully separate from its Banking Department, handles note issue [5].
• Section 26: every RBI note is legal tender anywhere in India for the amount printed on it, and the Central Government guarantees it [2].
• "I promise to pay the bearer…": this line on the note is the RBI's promise to the holder. Under Section 26, the RBI owes the holder the value of the note [2].

• Section 33: notes are backed by assets such as gold coin, gold bullion, foreign securities, rupee coin and rupee securities [2].

• Old laws repealed. The earlier Paper Currency Acts have been repealed. The laws in force now are the RBI Act 1934 and the Coinage Act 2011 [2].

3. Milestones in the Indian note

Year	Event
1861	Paper Currency Act gives the Government of India the monopoly of note issue. Presidency banks stop issuing notes
1935	RBI set up. Note issue passes to the RBI
1938	First RBI note: ₹5 (bearing George VI). The ₹10,000 note, the highest ever printed by the RBI, also came in 1938 [2]
Jan 1946	₹500, ₹1000 and ₹10,000 notes demonetised [2]
1949	Post-Independence ₹1 note with the Ashoka Lion Capital (Sarnath) in place of the King's portrait [2]
1951	Issuer's name, denomination and guarantee clause printed in Hindi [2]
1954	₹1000, ₹5000 and ₹10,000 notes brought back [2]
1970	"Satyameva Jayate" printed on notes for the first time [2]
Jan 1978	₹1000, ₹5000 and ₹10,000 notes demonetised again [2]
Oct 1987	₹500 note with Gandhi's portrait and the Ashoka Pillar watermark [2]
1996	Mahatma Gandhi series. The first ₹10 and ₹100 notes came in June 1996 [2]
2005	MG series 2005, with added security features and the year of printing on the reverse [2]
8 Nov 2016	Old ₹500 and ₹1000 notes stop being legal tender from midnight. The ₹2000 note is the first note of the Mahatma Gandhi (New) series [2]
2016 onward	Mahatma Gandhi (New) series, with heritage motifs on the reverse

• Demonetisation means removing the legal-tender status of a currency unit. After that, the old note is no longer money (Class 12 box).
• Specified Bank Notes (Cessation of Liabilities) Act, 2017, Section 5: after the grace period, a person may hold at most 10 old ₹500/₹1000 notes in total, or 25 for study, research or numismatics (coin and note collecting) [2].

4. Mahatma Gandhi (New) series (MGNS)

• Features:
• Smaller in size, so the notes fit a wallet better and wear out less [2].
• For the first time, the designs were developed within India [2].

• The themes show India's history, culture and scientific achievements [2].

• Reverse motifs (Class 7 asks students to find these on ₹50 and ₹100 notes):

Note	Motif on reverse
₹10	Konark Sun Temple
₹20	Ellora Caves
₹50	Hampi, with the stone chariot
₹100	Rani ki Vav (Patan)
₹200	Sanchi Stupa
₹500	Red Fort
₹2000	Mangalyaan (now withdrawn)

• Language panel: 15 languages appear in the panel. Hindi is shown in the centre of the front, and English appears on the reverse [2].
• Paper: 100% cotton [2].

5. Who decides what, and who prints

• Design (Section 25): the Central Government approves the design, form and material of notes, on the advice of the RBI Central Board [2].
• Denominations (Section 24): notes may be of ₹2, 5, 10, 20, 50, 100, 500, 1000, 5000 and 10,000, or any other value not above ₹10,000. The Central Government sets them on the RBI Board's recommendation [2][5].

• So a ₹5000 or ₹10,000 note is legally possible today without changing the law.

• Volume printed: the RBI estimates how many notes are needed each year, in consultation with the Government [2]. It looks at:

• expected growth of Notes in Circulation (NIC), using GDP growth, inflation, interest rates and the growth of non-cash payments;

• the need to replace soiled notes [2].

• Four note presses [2]:

• Government-owned, through SPMCIL (Security Printing and Minting Corporation of India Ltd): Nashik and Dewas.

• RBI-owned, through BRBNMPL (Bharatiya Reserve Bank Note Mudran Pvt Ltd): Mysuru and Salboni.

• Coins:

• The Government of India designs and mints coins under the Coinage Act 2011 [2].
• Coins are made in four SPMCIL mints: Mumbai, Hyderabad, Kolkata and Noida [2].

• Coins are issued only through the RBI (Section 38, RBI Act) [2].

• The ₹1 note is different.

• It is issued by the Government of India, not the RBI [2].
• For RBI Act purposes it counts as a "rupee coin" [2].

• So it is a liability of the Government, not the RBI [2].

• Distribution:

• The RBI has 19 Issue Offices [2].
• Banks keep 2,691 currency chests (storehouses of notes and rupee coins held on the RBI's behalf) (28 Feb 2025) [2].

• Banks also keep 2,299 small coin depots (28 Feb 2025) [2].

• Clean Note Policy: the RBI puts only good-quality notes back into circulation. Soiled notes are destroyed. The public is asked not to staple notes, write on them or make garlands from them [2].

6. Help for visually impaired users

• Intaglio (raised) printing: ink is pressed into the paper so that it stands up and can be felt by touch.

• On ₹100 and above, these parts are in intaglio: Gandhi's portrait, the RBI seal, the guarantee clause, the Ashoka emblem, the Governor's signature and the identification mark [2].

• Identification marks (raised shapes on the front) [2]:

• triangle = ₹100
• H = ₹200
• circle = ₹500

• horizontal rectangle = ₹2000

• Angular bleed lines (raised slanting lines at the edges) [2]:

• ₹100: 4 lines in 2 blocks
• ₹200: 4 lines with 2 circles between them
• ₹500: 5 lines in 3 blocks

• ₹2000: 7 lines

• Since 2015, identification marks on ₹100 and above are 50% larger [2].

• Strong colour contrast in the MGNS helps people with partial sight [2].
• MANI (Mobile Aided Note Identifier) app:
• Launched by the RBI Governor on 1 January 2020 [4].
• It identifies a note's denomination through the phone camera, even for half-folded notes and in low light [2][4].
• It gives an audio output in Hindi or English, or a vibration [4].
• It is free and works offline once installed [4].
• Trap: MANI does not check whether a note is genuine or fake [2][4].

7. Security features (anti-counterfeiting)

• Why new series come out. Central banks change designs to stay ahead of counterfeiters (people who make fake notes) [2].
• Main features [2]:
• security thread: on ₹100 and above, it shifts from green to blue when the note is tilted;
• watermark of Gandhi, plus an electrotype numeral in the watermark window;
• see-through register: half the numeral is on the front and half on the back, and they join when held against light;
• colour-shifting ink on the numerals of ₹200, ₹500 and ₹2000;
• latent image: in the MGNS it is on ₹100 and above;
• micro-lettering, and fluorescent number panels;

• since 2015, number digits that grow in size from left to right.

• Law: making or using fake notes is an offence under Sections 178–182, Bharatiya Nyaya Sanhita (BNS) 2023. The punishment runs from 7 years to life imprisonment, depending on the offence [2].

8. Denominations

• Denomination = the unit in which coins and notes are classified, e.g. ₹1, ₹2 and ₹5 coins and ₹10 to ₹500 notes.
• Rule of thumb: coins are for small values and notes are for large values.
• Current set:
• Coins: 50 paise, ₹1, ₹2, ₹5, ₹10, ₹20. These match the RBI's list [2].
  • Small coins = coins of 50 paise and below.
  • Rupee coins = ₹1 and above [2].

• Notes: ₹10, ₹20, ₹50, ₹100, ₹200, ₹500.

• ₹2 and ₹5 are now coins only. They were "coinised" (turned into coins) because printing and handling such short-lived notes cost too much. Old ₹2 and ₹5 notes are still legal tender [2].

• Class 7's list is outdated.
• NCERT: "…₹500 and ₹1000" notes.

• Now: the ₹1000 note was demonetised in November 2016 and has not come back [2].

• ₹2000 note:

• Introduced in November 2016.
• The RBI announced its withdrawal from circulation on 19 May 2023, but it remains legal tender.
• Bank branches took deposits and exchanges until 7 October 2023 [3].
• After that, only the 19 RBI Issue Offices accept these notes, for exchange or for deposit into bank accounts (deposits from 9 October 2023) [3].

• 98.39% of the ₹2000 notes in circulation on 19 May 2023 had come back by 29 November 2025. Only ₹5,743 crore was still outside [3].

• Coins as legal tender (Coinage Act 2011, Section 6) [2]:

• Coins of ₹1 and above are legal tender up to ₹1,000 in a single transaction.
• The 50 paise coin is legal tender up to ₹10.
• A person may still accept more coins by choice.
• Banks have no limit on coin deposits [2].
• The 25 paise coin stopped being legal tender on 30 June 2011 [2].

• Under the Coinage Act, coins can be issued up to ₹1,000 [2].

• Worked example 1: coin limit.

• A shop owes you ₹1,500 and offers ₹1,500 in ₹10 coins.
• You may refuse anything above ₹1,000 in coins.

• Only ₹1,000 of it is compulsory legal tender.

• Worked example 2: return rate of the ₹2000 note.

• Formula: Return % = (Value on 19 May 2023 − Value still outside) ÷ Value on 19 May 2023 × 100.
• Value on 19 May 2023: ₹3.56 lakh crore = ₹3,56,000 crore. Value still outside on 29 Nov 2025: ₹5,743 crore [3].

• (3,56,000 − 5,743) ÷ 3,56,000 × 100 ≈ 98.39%.

• Worked example 3: why a range of denominations helps.

• To pay ₹1,780 with the fewest pieces: 3×₹500 + 1×₹200 + 1×₹50 + 1×₹20 + 1×₹10.
• That is 7 pieces.
• With only ₹10 coins, it would take 178 pieces.

9. The ₹ symbol

• Adopted by the Government of India on 15 July 2010.
• Designed by D. Udaya Kumar of IIT Bombay.
• It blends the Devanagari "Ra" (र) and the Roman "R", with two parallel horizontal lines on top. The RBI describes it the same way [2].
• 1 rupee = 100 paise. The currency code is INR [2].
• ₹10 coins with or without the ₹ symbol are all legal tender [2].

Prelims Hooks

• The sole right to issue banknotes is given to the RBI by Section 22 of the RBI Act 1934. Section 24 sets denominations (up to ₹10,000). Section 25 covers design, and the Central Government approves it [2][5].
• ₹1 note = issued by the Government of India, not the RBI. It is a Government liability [2].
• Coins are minted by the Government (Coinage Act 2011) but issued only through the RBI (Section 38) [2].
• Highest note ever printed by the RBI: ₹10,000 (1938). It was demonetised in 1946 and again in 1978 [2].
• MANI (launched 1 Jan 2020) identifies the denomination, works offline and does not detect fakes [4].
• Identification marks: triangle ₹100, H ₹200, circle ₹500, rectangle ₹2000 [2].
• ₹2000: withdrawal announced 19 May 2023. It is still legal tender. 98.39% had returned by 29 Nov 2025 [3].
• Coin legal-tender limit: ₹1,000 per transaction for ₹1 coins and above. ₹10 for the 50 paise coin [2].
• Note presses: Nashik and Dewas (SPMCIL, Government); Mysuru and Salboni (BRBNMPL, RBI) [2].
• ₹ symbol adopted 15 July 2010. Designed by D. Udaya Kumar (IIT Bombay). Banknote paper is 100% cotton [2].

Mains Points

• High-value notes: convenient but risky. A large note makes big cash payments easy, but it also makes it easier to hide untaxed money (black money) and to hoard cash. That is why ₹1000, ₹5000 and ₹10,000 notes were demonetised in 1946 and 1978, the ₹1000 note in 2016, and why ₹2000 was withdrawn in 2023 [2][3]. Yet the RBI Act still allows notes up to ₹10,000 [5]. So the choice of denominations is a policy decision, not a limit set by law.
• Cost of printing vs value of the note.
• Low-value notes wear out quickly and cost too much to print and handle again and again.
• So ₹2 and ₹5 were coinised [2].
• Rising digital payments (UPI) now feed into how many notes the RBI orders each year [2].

• This is a GS-III link between currency management and the move towards a less-cash economy.

• Money that everyone can use. Raised printing, identification marks, bleed lines and the MANI app make cash usable for visually impaired people [2][4]. This links to the Rights of Persons with Disabilities Act, 2016 (GS-II). It is a strong point in favour of keeping cash even as digital payments grow.

• Trust in paper money. Paper money works only because people trust it. That trust rests on the RBI's promise (Section 26), the Central Government's guarantee, asset backing (Section 33) and security features that make fakes hard to produce [2]. Sudden demonetisation tests this trust. Leaving the ₹2000 note as legal tender after its withdrawal was a softer way to phase it out.