Thursday, 23 June 2011

Demonetisation of small coins: As RBI demonetises coins below 25 paise, their intrinsic value goes up manifold

Syed Akbar
Hyderabad: As the one paise and its "poor" cousins - 2, 3, 5, 10, 20 and 25 paise coins - are all set to face the "gallows" in the mint in the next one week, coin collectors suggest against their exchange with banks. Come June 30 and the Reserve Bank of India will demonetise all small coins up to the denomination of 
25 paise. They will now cease to be the legal tender 54 years after they were first introduced.
Though the Reserve Bank of India has asked people to exchange 25 paise and coins below,  numismatists estimate that once the demonetisation process is completed the intrinsic value of these small  coins will go up by as much as 500 times. Coins have two values depending on their rarity and antiquity - face value i.e 
the value printed, and intrinsic value i.e the actual value in the open market.
According to numismatists or coin experts, the intrinsic value of 25 paise coin will  shoot up to Rs 10 or 40 times the face value a few months after the RBI withdraws it from the banks' currency chests. 
Already the intrinsic value of one paise is Rs 5 or 500 times the face value. Similarly, two paise, three paise, five  paise, 10 paise and 20 paise coins command intrinsic value ranging from Rs 5 and Rs 10.
"As the coins are demonetised and withdrawn from the market, they become rare and difficult to acquire. It is the difficulty in obtaining and rarity of these coins that pushes up the intrinsic value by  leaps and bounds. If someone wants to collect 25 paise coin a year later, he or she has to shell down at least Rs 10 
to get it from coin collectors or coin shops," points out senior numismatist Dr Mohammad Safiullah.
The Central government introduced the naya paise concept under the decimal system in 1957. It was in this year that coins of the denominations - 1, 2, 3, 5, 10, 20 and 25 were introduced along with 50 
paise. With the cost of living increasing tremendously, the RBI has decided to withdraw coins up
to 25 paise denomination with effect from June 30. The small coins except 50 paise will be demonetised 54 years after they were introduced.
Though the RBI has long ago stopped production of coins of the denominations 1, 2, 3, and  5, it did not demonetise them. They still continue to be legal tender. But as minting of small coins has become  uneconomical, the apex banking authority in the country has decided to send these coins along with 10 paise, 20 paise and 25 paise to the gallows.
From July 1, India will be one of the few countries in the world where small coins are no  longer in circulation. Many countries continue to circulate small coins both for historic and economic reasons. The 
RBI has for reasons best known to it decided to tread a different path. In fact, there have been strong protests  from people in different parts of the country against the RBI's decision.
"Minting small coins may not be economical for the Central government. The cost of the  metal has increased, so also the salaries of the mint staff. The naya paise is the identity of Independent India. The 
naya paise or decimal series were introduced after India became Independent. Withdrawing them now five decades later  is nothing short of foolishness," argues coin lover and educationist B Moinuddin.
Incidentally, Hyderabad has a long association with small coins, including those minted  in pure gold and silver. The mint was set up in the city by the Nizams to produce their own currency (in contrast to  the British currency those days). The coins and currency notes were known as Osmania sikka. The naya paise later  rolled out of the Hyderabad mint eight years after the merger of the Hyderabad state with the Indian union.
Old timers recall how these "small coins" came handy for them in their daily lives. The 20 paise coin cast in brass with the lotus emblem was an instant hit. Enterprising people used to give the coins to  goldsmith so that he could add it to gold to prepare finger rings. Earlier, when copper coins were in circulation, they 
were melted and added to gold ornaments.
"I have noticed some people who used to sport the 20 paise coin on their finger rings.  Goldsmiths used to join the coin to the ring as an added attraction. There were times when grocers used to check the  genuiness of coins by using magnets. Fake coins were manufactures in those days using German silver or sattu. If the  coin is attracted to the magnet, it is considered genuine. Every grocer had a magnet in his cash box," recalled  senior homeopath Dr M Janardhan Rao.
The RBI may have withdrawn these coins through a small circular, but the memories  associated with them continue to linger for many years, specially for the old timers, who used to buy a pocket full of 
chocolates for just 25 paise.

Indian coins - some little known facts
==========================* The Coinage Act, 1906 passed by the erstwhile British government empowers the Reserve Bank of India to come out with coins up to the denomination of Rs 1000. If the RBI has its way, it can  introduce Rs 500 and Rs 1000 coins.
* The RBI has introduced Rs 75 coin and plans to introduce Rs 150 coin. However, these  coins are part of "collection series" and not meant for public circulation.
* Though India won its independence on August, 15 1947, it did not come out with its own  distinctive currency for the next three years till August 15, 1950. Pakistan introduced a new series of coins in 1948 and notes in 1949.
* Coins that were legal tender between 1947 and 1950 are called the Frozen Series. During  the period, the monetary system remained unchanged at One Rupee consisting of 192 pies or 16 annas. Each anna was 
divided into 4 pice and each pice was sub-divided into 3 pies.
* The Anna Series was introduced on August 15, 1950. It represented the first coinage of  Republic India. The King's portrait was replaced by the Lion Capital of the Ashoka Pillar. A corn sheaf replaced the 
tiger on the one Rupee coin. However, the monetary system was largely retained unchanged with one Rupee consisting of  16 Annas.
* India moved to the Decimal Series on April 1, 1957 after the Indian Coinage Act was  amended in September, 1955 to introduce a metric system.
The rupee remained unchanged in value and nomenclature. It, however, was now divided into 100 'Paisa' instead of 16 Annas or 64 Pice. For public recognition, the new decimal Paisa was termed 'Naya 
Paisa' till  June 1, 1964 when the term 'Naya' was dropped.

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