Why Indian Government doesn't print unlimited notes?

If countries have their own currency, that means they are printing them somewhere, then why don't they print them in bulk? What if a country has too many printed notes, will it have any positive or negative impact? Who regulates money printing in India? For sure, these questions may arise in someone's head. So, let's understand the regulation of currency notes and coins in India.

What is RBI?

• The Reserve Bank of India(RBI) prints currency notes, not the Government of India, headquartered in Mumbai, India.
• RBI is a central bank that controls the monetary policy in India.
• RBI is a member of the International Monetary Fund(IMF) also. At Present a total of 190 countries are members of the IMF.
• It was established on 01st April 1935 and RBI Act, 1934, Section 22 states only RBI can issue currency notes.
• It was established as a private bank but later it was nationalized in 1949 and comes under the ownership of the Ministry of Finance.

Functions of RBI:

• One of the most prominent functions of RBI is to issue & operate Indian currency to provide economic stability. It has the monopoly of printing notes of various denominations except one rupee note that is issued by the Ministry of Finance.
• It acts as a banker to commercial banks and the government, It lends money to commercial banks and acts as an advisor to the Indian government for public debt.
• In order to keep inflation in check, the RBI maintains the credit system.
• It manages the Foreign exchange rates by buying and selling foreign currencies in the market.

Note printing & coin minting is done by Bharatiya Reserve Bank Note Mudran Pvt. Ltd. and the Indian Government respectively. RBI can print a maximum of 10,000 INR currency only, to print more than this government has to amend the RBI Act 1934.

There are totally four currency printing presses in India: Nashik(Maharashtra), Devas(Madhya Pradesh), Mysore(Karnataka), and Salboni(West Bengal).

RBI performs a statistical Analysis of how many notes are in circulation, how many have been destroyed, how many need to be replaced, etc. After all this process, RBI consults with the Ministry of Finance for its note-printing process.

Minimum Reserve System (MRS):

As per Minimum Reserve System, RBI needs to maintain a minimum reserve of Rs 200 crore that includes gold and foreign exchange in which the total value of gold is Rs 115 crore and Rs 85 crore for foreign exchange. Currency printing is done on the basis of MRS only. It was introduced in India in 1957.

Why MRS is Necessary?

It provides an assurance to all the currency owners that they have a legal tender and will get the value worth of that currency. The value of the currency is compared to the total gold value stored in MRS.

For E.g. If you have a Rs 100 note then RBI is liable to give you gold worth Rs 100. RBI shall not be the defaulter in that case. Since it has been clearly written on notes that "I guarantee to pay a bearer an amount of 100/200/500 rupee".

What if currency notes will be printed blindly?

• Indian currency will lose its value, the economy will crumble because if notes have been printed blindly then their worth can't be decided according to the gold value stored in MRS. If notes have been printed of more than Rs 115 Crs value then the government can't provide the face value of the notes and the guarantee statement written on the note will become invalid.
• Without the RBI governor's signature and pledge, a currency note is just a piece of paper, it has no value.
• It will cause inflation in the country. If too many notes have been circulated, it would increase the purchasing power of every citizen, with that demand will also increase but there will decline in supply which will make basic needs costlier, and when the demand-supply gap hits the basic needs, it will cause inflation to rise.

To control demand and supply RBI can't print notes blindly. It will make things costlier only.

Examples

• Venezuela: To combat poverty & social inequality, and improve their health infrastructure and services, the Venezuelan government under political crisis, decided to print more currency notes. 1 Lakh currency note was printed but contains no value.

The cost of items was rising not only day by day but every hour. The Venezuelan government led by Nicholas Maduro declared an emergency in year 2016 and the inflation rate was 800%.

• Zimbabwe: To beat inflation, they printed million dollar notes due to which product prices sky-rocketed and the currency value starts declining day by day. Finally, they enter into a hyperinflation state, and in the year 2022, the inflation rate was 60%.

CONCLUSION

A currency note is just a piece of paper without the RBI governor's signature and pledge. To control demand and supply in the market, RBI can't print notes blindly. It will cause a decline in the economy, and rupee value that will go up to inflation.