RBI Considers Introduction of Polymer Currency Notes; Proposal Under Preliminary Review

Addressing the media after the Monetary Policy Committee meeting, Malhotra said the central bank is evaluating the advantages and disadvantages of polymer-based banknotes before taking any final decision. “Polymer note is under consideration. We are examining the pros and cons. It is at a preliminary stage,” he said.

The discussion emerged alongside deliberations on inflation, interest rates, global economic uncertainties, and the impact of the Middle East conflict on commodity prices. During the briefing, the governor also highlighted the possibility of introducing a new generation of currency notes manufactured from polymer rather than the traditional cotton-based paper currently used in India.

Polymer currency notes are produced using a specialized plastic substrate instead of cotton-pulp paper. First developed in Australia, polymer banknotes have since been adopted by several countries, including the United Kingdom, Canada, New Zealand, and Singapore.

Unlike conventional paper currency, polymer notes are significantly more durable and resistant to moisture, dirt, and wear. They are designed to withstand heavy circulation for much longer periods, making them particularly suitable for countries with diverse climatic conditions.

One of the major challenges faced by the Reserve Bank of India is the rapid deterioration of currency notes due to frequent handling and environmental factors. According to Reserve Bank of India data, nearly two lakh damaged currency notes are withdrawn and destroyed annually. High-denomination notes, particularly those valued at Rs 100 and Rs 500, account for a substantial portion of the damaged currency removed from circulation.

Global studies have shown that polymer notes can remain in circulation for at least twice as long as conventional paper notes and, in some cases, up to five times longer. Their extended lifespan could help central banks reduce long-term printing and replacement costs.

The proposed shift could also strengthen efforts to combat counterfeit currency. Polymer banknotes can incorporate advanced security features such as transparent windows, holograms, colour-shifting elements, and other sophisticated safeguards that are considerably more difficult to replicate than those found on traditional paper notes.

Counterfeit currency continues to be a concern for central banks worldwide. Reserve Bank of India data has indicated a rise in the detection of fake high-denomination notes in recent years, particularly counterfeit Rs 500 notes. Countries that have adopted polymer currency have generally reported lower levels of successful counterfeiting.

Australia, which completed its transition to polymer banknotes by the mid-1990s, states that its latest generation of currency incorporates multiple advanced security features that make counterfeiting extremely difficult.

The concept of polymer currency is not new in India. The Reserve Bank of India first proposed the introduction of polymer notes in 2007 and later announced pilot projects involving Rs 10 polymer notes in Jaipur, Shimla, Bhubaneswar, Mysuru, and Kochi.

Over the years, several tenders and feasibility studies were conducted, but the proposal did not advance beyond the planning phase. In 2016, the government informed Parliament that the procurement process for polymer notes had been initiated. However, a nationwide rollout never materialized.

More recently, the central bank experimented with varnished notes—traditional paper currency coated with a protective polymer layer—to improve durability and extend circulation life.

The remarks came as the Monetary Policy Committee unanimously decided to keep the repo rate unchanged at 5.25 per cent while maintaining a neutral policy stance. The committee cited global uncertainties, geopolitical tensions in the Middle East, and inflation-related concerns as key factors influencing its decision.

The renewed consideration of polymer currency marks another significant step in the Reserve Bank of India’s long-running efforts to modernize the country’s currency system. If eventually implemented, polymer banknotes could enhance durability, reduce replacement costs, and strengthen security measures against counterfeiting, potentially reshaping the future of currency circulation in India.