AboutDr.VSR.Subramaniam Expertise Basically a B.Sc (Physics) from the University of Madras, India. Started the career in production engineering under German and Italian experts. MBA in Management from IIM, Ahmedabad (India). Ph.D (Management) from the University of Bomaby (the first ever awarded in this subject). Headed the computer centres of Multi nationals; "Data Processing expert" of the Commonwealth, London (To implement World Bank and UNDP Computer softwares); "Consultant Adviser" to the Caribbean Development Bank (CDB), Barbados. Associated with Nobel Laureate in Economic Science-1979, Arthur Lewis (Past President of CDB) & 4 more on his introduction. Visiting professor to many universities. A Trained ISO 9001:2000 Quality Auditor. Over 40 years of combined experience in Accounts, Computer Software, Economics, Engineering, Management, Science, Technology, Research & Development and Qulaity systems. Author of over 60 Application Research papers. Currently a free-lance consultant in ISO Quality Systems, Socio-Economic development acceleration, Innovative software designs. Can answer any question in Theoritical/Applied-economics with an in-depth and innovative dimension. I DO NOT ANSWER : 1. STATISTICAL data & analysis. 2. PRIVATE questions, as they do not appear for PUBLIC view & search 3. Examination & Project report oriented questions. Website http://www.drvsrs.com
Experience Experience in the area Over 40 years in Industrial, Service and Economic development sectors. Socio-economic development oriented expertise (1982-86). With Commonwealth Fund for Technical Cooperation, London as a "Data Processing Expert". With Caribbean Development Bank, Barbados (UNDP,World bank set up) as a "Cnsultant Adviser". See "http://www.drvsrs.com/drvsrs.htm" and "http://www.drvsrs.com/publication.htm". National & International awards. R & D Author at http://ideas.repec.org/e/psu50.html and http://www.ssrn.com/author=360079
Hope you are well, I am happy to get chance for ask following questions.
According to my knowledge, Reserve bank of india is printing currency in each year.
Who will be getting the money which is newly printed (Excluded for reissue)?
What is the policy for printing new currency for newly using (Not for re-issue of currency)?
If one of State government need cash for pubic work (e.g Making new roads), Can Central Govt or Central Bank (RBI) print new notes and supply to State Govt. ?
If the above Question's answer is "No, that will be cause of inflation" , Please advise me how it effects to inflation.
Thanks & Best Regards
Sabith PV
Budget Officer
Answer I am happy to receive a question from the Budget Officer of a Government.
In fact the currency printing is a crucial job and if not done properly, it will have many bad impacts on the economic growth of a nation. I will answer your question in parts.
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A) What and who decides the money (currency) in circulation in Indian (or any other nation’s) money market ?
a) The Reserve Bank of India (RBI) (or the Apex bank in any nation) manages the domestic currency. The Government, on the advice of the Reserve Bank, decides on the various denominations. The Reserve Bank also co-ordinates with the Government in the designing of bank notes, including the security features. The Reserve Bank estimates the quantity of notes that are likely to be needed denomination-wise, and places the indent with the various Security presses through the Government of India. The notes received from the presses are issued and a reserve stock maintained.
Notes received from banks and currency chests are examined. Notes fit for circulation are reissued and the others (soiled and mutilated) are destroyed so as to maintain the quality of notes in circulation. The Reserve Bank derives its role in currency management on the basis of the Reserve Bank of India Act, 1934. In other countries a Central Bank similar to Reserve Bank takes care of these functions.
b) To facilitate the distribution of notes and rupee coins, the Reserve Bank has authorised selected branches of commercial banks to establish currency chests. These are actually storehouses where bank notes and rupee coins are stocked on behalf of the Reserve Bank. At present, there are over 4368 currency chests. The currency chest branches are expected to distribute notes and rupee coins to other bank branches in their area of operation.
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B) Can reserve bank of India or Indian government bodies decide to print additional currencies to meet public expenditure (like road building) ?
a) The Reserve Bank estimates the demand for bank notes on the basis of the growth rate of the economy, the replacement demand and reserve requirements by using statistical models. The Reserve Bank decides upon the volume and value of bank notes to be printed. The quantum of bank notes that needs to be printed broadly depends on the annual increase in bank notes required for circulation purposes, replacement of soiled notes and reserve requirements.
b) In case of additional needs for public expenditure like building roads etc.. the RBI estimates the expected economic return to the nation by providing this additional notes in circulation. On justified cases the additional notes are printed.
b) The Government of India decides upon the quantity of coins to be minted. The responsibility for coinage vests with Government of India on the basis of the Coinage Act, 1906 as amended from time to time. The designing and minting of coins in various denominations is also attended to by the Government of India
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C) Inflation
a) If notes are printed and pumped into the circulation, it creates a demand for various commodities. It is because the people have more money in hand and jump to but the goods of their interest. More buyers with less production and supply of the various demanded items leads to steep increase in prices. This is the root cause for inflation. As a result, the purchasing power of the domestic currency goes down. Hence additional notes should be printed based on the expected return from public expenditure.
b) The primary root cause for inflation is not the note printing. It is the government borrowing from IMF, World bank etc… The borrowed money should be productively used to get sufficient 4 rates of return (Economic. Financial, Social and Technical). Then it will be possible to return the loan (with subsidised interests). But all the government borrowing by the developing / under developed nation are pumped into the nation without any productive returns. This pumped money creates more buyers with less production and supply of the various demanded items, leading to steep increase in prices. This is another root cause for inflation.
c) Allowing foreign investors into a nation with attractive incentives, cheap labour and free export, is another root cause for inflation. The multi nationals use the land, infrastructure, human power etc.. at cheaper rates, sell their gods locally or abroad and take the entire profit to their native nations. The productive contribution to the host nation is nil. But they have distributed a large sum as salaries and local purchases without any contribution to the local productivity. This is another root cause for inflation.
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D) Additional reference and informative reading materials
a) Reserve Bank of India : Frequently Asked Questions - Your Guide to Money Matters.
