The Reserve Bank of India (RBI) is preparing to launch a pilot programme for polymer banknotes from the beginning of the next financial year, Governor Sanjay Malhotra announced on Wednesday.
The trial will initially cover Rs. 10 and Rs. 20 denominations, marking the central bank's renewed effort to introduce more durable currency into circulation.
The proposed polymer notes will circulate alongside existing paper banknotes, with the RBI making it clear that there are currently no plans to replace paper currency. The initiative revives a proposal first introduced in 2009, which was later shelved because of technical challenges.
If the pilot proves successful, the RBI could gradually expand polymer banknotes to higher denominations, including Rs. 100 and Rs. 500.
Why Polymer Banknotes?
Polymer banknotes offer several advantages over conventional paper currency.
They are more resistant to moisture, dirt, folding and tearing, making them significantly more durable and capable of remaining in circulation for longer periods.
Why Rs. 10 and Rs. 20?
The RBI selected Rs. 10 and Rs. 20 notes for the pilot because they account for nearly 25 per cent of the total volume of banknotes in circulation, despite representing only 1.4 per cent of the total value.
Their high usage and relatively low monetary value make them ideal for testing while limiting financial risks if operational issues arise.
The pilot programme will help the central bank evaluate the notes' durability, public acceptance, printing efficiency, and the effectiveness of their security features against counterfeiting.
Another reason for choosing lower denominations is operational convenience. Unlike higher-value notes, Rs. 10 and Rs. 20 banknotes are primarily distributed through bank branches instead of ATMs, allowing the RBI to conduct the trial without immediately upgrading cash dispensers or cash recyclers.
ATM Compatibility Concerns
Existing ATMs are not designed to identify polymer currency, and introducing polymer notes in higher denominations would likely require software updates and machine recalibration.
The outcome of the pilot will play a key role in determining whether the RBI expands polymer banknotes to the rest of India's currency system.
