Demonetisation Could Not Eliminate Fake Notes, But Fintech Can. Let's Give It A Chance

Even after the demonetisation in 2016, which had the elimination of note counterfeiting as one of its primary goals, the circulation of fake Indian currency notes (FICN) in the country has remained a problem. Demonetisation was announced on November 8, 2016, after which notes of Rs 500 and 1,000 were banned, which was a total of 86 percent of the entire currency circulation at that time. With demonetisation, there were promises that this will end the problem of black money, make the country’s economy cashless, eliminate fake notes, and curb extremism and terrorism.

While introducing the Rs 2,000 and new Rs 500 notes, the Reserve Bank of India (RBI) had claimed that it would be very difficult to copy their security features. But this has not happened. According to the RBI’s annual report for 2022-23 released last week, the number of counterfeit notes of Rs 500 denomination detected by the banking system increased by 14.6 percent to 91,110 pieces over the previous year. The total number of counterfeit notes of all types is 2.25 lakh pieces. RBI reported 78,699 fake notes of Rs 100 and 27,258 fake notes of Rs 200 during this period.

According to the report, there has been an increase of 8.4 percent in counterfeit notes detected in the denomination of Rs 20. On the other hand, counterfeit notes of Rs 10, Rs 100 and Rs 2,000 have declined by 11.6 percent, 14.7 percent and 27.9 percent, respectively. According to the RBI annual report published in May 2022, the number of fake Rs 500 notes in FY 2021-22 had more than doubled to 79,669 in FY 2020-21. This means those who print and run fake notes have focused their attention on Rs 500 notes.

The central bank mentioned in its report that . The total expenditure incurred on security printing during this period was Rs 4,682.80 crore. According to the National Crime Records Bureau (NCRB), fake currency worth Rs 245.33 crore has been seized across the country from FY 2016 to 2022.

Why Efforts To Stop Counterfeiting Are Falling Short 

It is not that efforts are not being made by the government and the RBI to stop printing and circulation of fake notes. But as new features are added to notes to enhance their security, the technology to counterfeit them also evolves. The National Investigation Agency (NIA) has found that these high-quality fake currency notes are coming to India through Nepal and Pakistan. These notes are reportedly printed in Pakistan, and most of the features of the Indian currency are adapted, due to which it becomes difficult for the common man to differentiate between the genuine notes and the fake. 

The introduction of fake cash in the market increases the amount of money in existence, which increases inflation in the market, leading to a huge demand for goods and services. Additionally, such fake notes are also used by terrorists. Fake notes are fatal for any economy. To overcome this is a big challenge for the RBI and the government. This is such a unique criminal case in the world whose real mastermind has not been found till date. 

And it’s not only fake notes, the market is increasingly receiving fake coins too. It is very difficult to identify fake coins. Last year, 58 trucks carrying fake five-rupee coins were seized at the Jammu border. 

Fintech Is The Way Forward

Although the treatment of this dangerous problem, which has become a challenge for the economy, is difficult, it’s not impossible altogether. In 1988, Australia was the first country in the world to issue banknotes made of polymer, which it subsequently adopted completely. There are currently polymer banknotes in circulation in over 75 countries, including Singapore, Canada, the United Kingdom, Scotland, Israel, the United Arab Emirates, Brazil, and New Zealand. The fact that they are between two and four times more durable and difficult to forge results in substantial long-term benefits, despite the fact that their production may be relatively costly. The RBI report for fiscal 2013 had highlighted the low cost, security, and counterfeit resistance of polymer notes as advantages of using polymer notes. The annual report for FY15 mentioned a request for proposals (RFP) for Rs 10 notes as well as a technical evaluation, and the annual report for FY16 detailed a "field trial" for Rs 10 notes. It's time to reconsider the proposals because there are countless cash transactions, especially small ones, and because both the stairs and the lift have their own benefits. 

The retail use of digital rupee proposed by the RBI could be a major step in this direction, given the problems of managing currency logistics (handling of cash) along with counterfeit notes. Big economies like the US and the UK also do not print big notes of dollar and pound, and big transactions are digital. By promoting this, if the circulation of high denomination notes is stopped, the problem of counterfeit notes can be tackled to a great extent. The only requirement is to make it easy and safe. Apart from this, promoting digital transactions is also a way to reduce the dependence on notes. Digital transactions will drive the economy in the near future, and fintech is the way forward for the Indian banking and payment system. According to a study by Deloitte Research Agency, 1,100 million people are currently using mobile phones in India, of which 720 million are using smartphones, but due to instances and fear of online frauds, only 40 million people currently use mobile banking.

The author is Associate Professor at Atal School of Management, Jawaharlal Nehru University (JNU), New Delhi.

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