August 31, 2009

Indian Rupee and History


Rupee is the name given to the official currency that is used in several countries including India, Bhutan, Pakistan, Sri Lanka, Nepal, Mauritius, Maldives and Indonesia. The name rupee comes from the Sanskrit language word 'rupyakam' meaning silver coin. Rupee in different regions is denoted with different symbols most commonly Rs, and Rp. One unit of the currency is equivalent to one hundred equal paise.

Among all the countries mentioned above that have rupee as their national currency; the Indian rupee is the most important with respect to value, preference and popularity. India stands among those countries that discovered the need for a currency and the first rupee coins were issued as early as in the 16th century. The currency code and numeric code for Indian rupee according to the ISO 4217 standard are INR and 356 respectively. The currency in India is denoted with the sign Rs.


India retains the reputation of issuing the some of the earliest coins in the history of mankind. The currency of India i.e. the Indian rupee is also one of the well-established currencies in the world. The importance of the Indian rupee in the world market is characterized by the fact that Bhutan and Nepal peg their currencies to the Indian rupee. Moreover, the Indian rupee is considered a legal tender in Bhutan that has dollorized the currency. Indian rupee does not use the western number system and has a number system of its own. As in the western number system, the large values of money are counted in terms of hundred, thousand, million and billion respectively, in the Indian number system the large values are counted as hundred, thousand, lakh and crore. The Indian number system is also popular among the countries like Pakistan, Nepal, Myanmar, Bhutan and Bangladesh.

Earlier the rupee coins were made up of silver and that is where this name 'rupee' is derived from as the word 'rupyakam' means silver coin in the Sanskrit language. But when the large silver mines were discovered in the United States of America and parts of European continent, the value of silver declined drastically as compared to gold on which all the other strong economies were based. As a result, the value of Indian rupee also declined as compared to other currencies in the world and this incident is called the 'fall of rupee'.


Indian rupee did not use the decimal system and rather was subdivided into 16 annas till 1957. In 1957, the decimal monetary system was adopted and one unit of rupee was restructured equivalent to 100 equal paise. The currency in the country is issued in the form of banknotes and coinage, the Reserve Bank of India and the Government of India possessing the issuing authority for banknotes and coins respectively. The central bank i.e. the reserve bank of India is entitled to change the banknote series and the Mahatma Gandhi series, which is in circulation currently, was launched in 1996. The notes are issued in 7 denominations i.e. Rs 5, Rs 10, Rs 20, Rs 50, Rs 100, Rs 500, Rs 1000. Two more denominations for banknotes i.e. Rs 1 and Rs 2 are still in circulation but no new notes are being printed as coins for both these denominations are being minted now. Each note depicts the face value of the note in 17 languages. The notes also have some unique features quite often called the security features that help in avoiding the duplicity and illegal circulation of the notes. These features include
  • Mahatma Gandhi watermark
  • Silver security
  • Latent image
  • Micro-lettering
  • Fluorescence
  • Optically variable ink
  • Back to back registration

Coins for the Indian currency are minted in 7 denominations namely 10 paisa, 20 paisa, 25 paisa, 50 paisa, Rs 1, Rs 2 and Rs 5 under the Coinage act 1906. The country has four coin mints one each at Mumbai (Maharashtra), Hyderabad (Andhra Pradesh), Kolkata (West Bengal), Noida (Uttar Pradesh). Like in the case of banknotes, the management of circulation of coins is in the hands of the Reserve Bank of India.


India is the place where the concept of coinage developed at its earliest in around 6th century BC which later on built the base for other currencies of the world. according to the historians, the Indian currency i.e. rupee was brought into existence by Sher Shah Suri in the 16th century and it was evaluated as equal to 40 copper coins per rupee. The dominance of Mughals over India started diminishing when the British arrived in the country. The paper money was introduced under their reign in the latter part of the 18th century. Bank of Hindostan made the earliest rupee notes issues in the year 1770.

It was followed  by some more issues of the currency notes by private and presidency banks. For 100 odd years, the issue of bank notes by the private and presidency banks continued but with the formation of The Paper Currency Act  in 1861, the issue of notes was monopolized by the Government of India. The government of India (British India) initially appointed the presidency banks as their agents to help it with the circulation of bank notes as it was a tough job to promote the use of common note over a wide stretch of area. The notes had to be made a legal tender due to the problem arising from the redemption of these notes.

In 1867, the presidency banks were dismantled from the positions as the  agents to the Government of India and the responsibility of the management of the currency was given to the mint masters, account generals and the controller of the currency. The first series of notes that was issued by the government of India was the Victoria portrait series. The notes in the series were uni-faced and were issued in 5 denominations. This series was replaced by the underprint series of notes in 1867 which was kept in use for than 50 years. This long duration of time observed many positive changes in the bank note quality and introduction of a few security features as well. The need to issue small denominations note arose with the beginning of the world war I and Rs 1 note was issued for the first time.

In 1923, the underprint series was replaced by the king's portrait series and they were continued to be used till 1935. The reserve bank of India took over the authority to print and circulate banknotes from the government of India. The notes bearing the portrait of George V was replaced by the notes bearing the portrait of George VI in 1938. In 1940, the one rupee note was re-launched due to the emergence of second world war. The notes with the portrait of George VI were in circulation till 1947 and were taken off the money market with the independence of India. The Indian rupee was adopted as a sole currency of the country and the use of all other domestic coinage was put to an end. The country adopted the decimalization standards in the year 1957. The current Mahatma Gandhi's portrait series was introduced in the year 1996.

Factors affecting the exchange rates between two countries

The volatility in the foreign exchange rates depends upon a numerous macro economic factors that have different degrees of importance to different economies of the world. Some special and exceptional factors affecting the rates may also exist in the case of different countries. Following are shown the common factors on which the foreign exchange rate depends

  • Flow of imports and exports between the countries
  • Flow of capital between the countries
  • Relative inflation rates
  • Fluctuation limits on exchange rate imposed by the governments of the countries
  • Merchandise trade balance
  • Rate of inflation in the country
  • Flow of funds between the countries for the payment of stock and bond purchases
  • Relative growth
  • Short term and long term interest rate differentials
  • Cost of borrowings


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