New Delhi: Chinese merchants of the 10th century found it difficult to carry large amounts of money in coins, so they carried promissory notes or token money. This allowed them to leave bulk money with a person, cashable later on production of the note.

The first circulating notes, called Jiaozi, were introduced by the Song dynasty in 960; but it did not manage to successfully replace the copper coins.

It was Kublai Khan, the founder of the Yuan Dynasty, who was the first to use paper currency, named Chao (paper money) as a circulating medium.

Europe saw the use of promissory notes in the 14th century. In 1660, the predecessor of the Bank of Sweden; Stockholms Banko issued the first proper European banknotes. Till the reign of Louis XIV, banknotes were not authorized by the State and were used only as small credit papers. With the help of the economist John Law, these banknotes were established as the proper formal government currency.

In America, the concept of using fixed denominations and printed banknotes was introduced in the 18th century. But it was in 1933 that the United States passed an executive order that imposed a fine of $10,000 and 10 years imprisonment for keeping more than $100 of gold in preference to banknotes. This resulted in the public acceptance of the banknotes over the metal coins.

In India, Muhammed Bin Tughlaq introduced the concept of token money in the 14th century. The silver taka was replaced with copper coins but the experiment failed.

Authorized promissory notes issued by banks came into India only in late 18th century. Bank of Hindostan (1770-1832), the General Bank of Bengal and Behar (1773-75) and the Bengal Bank (1784-91) were among the early issuers of bank notes in India.

However, the issue of bank notes became widespread in 1861, after semi-government Presidency banks started issuing bank notes after the enactment of the Paper Currency Act. They were made agents to manage the currency crisis. In 1935, Reserve Bank of India was established to take care of the note issue. RBI issued the first five-rupee note, bearing the portrait of George VI in 1938. This was followed by paper notes of Rs10, Rs100 and Rs1,000 later in the year, all bearing signatures of the second governor, Sir James Taylor. This was continued till 1947.

Post-independence, a newly designed Re1 note was brought out by the government of India. In 1949, the Lion Capital of Ashoka was chosen to replace the King’s portrait.

The Mahatma Gandhi Series was introduced in 1996. The new currency also included features like a changed watermark; windowed security thread and intaglio mark for the visually handicapped.

Currently the currency presses are in Mysore Karnataka and Salboni in West Bengal.

From paper to polymer

Australia has taken the lead in developing polymer currency. In 1988, the Reserve Bank of Australia (RBA), Commonwealth Scientific and Industrial Research Organization (CSIRO) and the University of Melbourne together developed the material Polymer Biaxially-oriented Polypropylene (BOPP) which was used to issue (aus) $10 notes. By 1996, the Australian currency was completely replaced with polymer banknotes.

Polymer notes have dual advantages over traditional paper notes: longer-lasting fiat currency and to reduce counterfeiting. They are reported to enhance security, quality, cleanliness and cost effectiveness.

Today, the Note Printing Australia (NPA), a subsidiary of the Reserve Bank of Australia provides polymer notes to 20 countries, including, Bermuda, Brunei, New Zealand, Papua New Guinea, Romania, and Vietnam where the polymer currency has completely replaced paper notes. Other countries using the NPA polymer notes alongside paper notes include Bangladesh, Brazil, Chile, Indonesia, Nicaragua, Sri Lanka, Samoa, Thailand, Israel, Malaysia, Mexico, Nepal, and Zambia. According to the NPA, there are 12 billion polymer banknotes circulating worldwide.

India and the polymer

Earlier this year, RBI had reported that fake notes found in remittances during 2008-09, amounted to eight per one million notes in circulation, not counting fake notes seized by the police. India decided to issue 100 crore-polymer notes of Rs10 denomination on a trial basis in 2009. The project is still in waiting. These notes would be first tried on a pilot launch in five cities. Reduced incidence of counterfeiting, cleanliness and durability are on test.

After China, India is the largest producer and consumer of currency notes. The cost- benefit of the switch from paper to polymer will also be a decisive factor in the long-term use of the polymer notes. More than just to being recyclable bank notes or to reduce the government of India’s carbon footprint, polymer currency is expected to enhance the security feature and reduce costs.