GATHERING THE SMALL CHANGE

There was a moment of pure comedy at a recent RBI press conference in Chennai, to announce the withdrawal of 25 paise coins and other coins of smaller denomination. Out of the blue, a TV reporter wanted a 25 paise coin to show it in the visuals accompanying the story.

  

There was a mad scramble as officials and other reporters ransacked their purses and pockets to see if they could come up with a 25 paise coin to cater to this whim. Never have so many tried so much for so few! (with apologies to Churchill).

For a few seconds it almost looked as though the public had  dispensed with the 25 paise long ago — and this announcement, like many other RBI/Government announcements, was a post facto recognition of prevailing reality.  But just in time, this elusive dime was found, and peace was restored. 

 All that the officials were willing to say was that the withdrawal of coins was on Government's orders.  Other reporters just speculated that since nothing could now be got for 25 paise or less, it might as well be withdrawn.  Inflation has eroded the value of the coins and it perhaps costs more to manufacture the coin than the value it denotes.  In any case, the RBI is not telling.

There is one piece of information in its Annual Report of 2010 that one may find interesting. According to the Report, there were about 105 billion pieces of coins of all denominations as of March 2010 — worth about Rs 11,020 crore.  About 54 billion pieces, or roughly half of the coins, are called small denomination coins (value of less than Re 1).  These account for Rs 1,455 crore in value or about 13 per cent of the value of coins in circulation.

While the exact break-up of small coin denomination is not available, it is still going to be a tall order for the RBI to pullback a substantial part of these coins into its vaults.  That's because the RBI is getting a limited number of coins (something equivalent to about Rs 3,000 every day) since the process began in the second week of March. 

Would you go to a bank and exchange your small change or would you rather drop them into a temple hundi or give them off to beggars?  Maybe the RBI will have better luck with them?

And, by the way, those who think they can melt these coins and extract value had better be warned. The Lok Sabha passed the Coinage Bill 2009 on Friday, which provides for increasing the maximum punishment for melting or destruction of coins from five years of imprisonment to seven.

SOURCE: http://www.thehindubusinessline.com/todays-paper/tp-money-banking/article1576991.ece