Indian rupee

Etymology

The word "rupee" was derived from the Sanskrit word रूप्यकम् (rūpyakam) or rupaya (meaning "wrought silver, a coin of silver"). The modern Indian rupee has a direct lineage from the rupiya, the silver coin, issued by Sher Shah Suri (1540—1545), continued by the Mughal rulers. Arthashastra, written by Chanakya, prime minister to the first Maurya emperor Chandragupta Maurya (c 340–290 BCE), mentions silver coins as rūpyarupa, other types of coins including gold coins (Suvarṇarūpa), copper coins (Tāmrarūpa) and lead coins (Sīsarūpa) are also mentioned. Rūpa means to form or shape, example, Rūpyarūpa, rūpya — wrought silver, rūpa — form.

However, in the region of Bengal, the term taka has always been used to refer to currency. In the 14th century, Ibn Battuta noticed that people in the Bengal Sultanate referred to gold and silver coins as taka instead of the dinar. Today, the currency of Bangladesh is officially known as taka. The word taka in Bengali is also commonly used generically to mean any money, currency, or notes. Thus, colloquially, a person speaking in Bengali may use "taka" to refer to money regardless of what currency it is denominated in. Thus, in the states of West Bengal and Tripura the Indian rupee is officially known টাকা (ṭaka). Whereas, in the states of Assam and Odisha, the Indian rupee is similarly known by names derived from the Sanskrit word ṭaṅka (meaning "money"), টকা (ṭôka) in Assamese and ଟଙ୍କା (taṅkā) in Odia.

History

The history of the Indian rupee traces back to Ancient India in circa 6th century BCE, ancient India was one of the earliest issuers of coins in the world, along with the Chinese wen and Lydian staters.

During his five-year rule from 1540 to 1545, Sultan Sher Shah Suri issued a coin of silver, weighing 178 grains (or 11.53 grams), which was termed the Rupiya. The silver coin remained in use during the Mughal period, Maratha era as well as in British India. Among the earliest issues of paper rupees include; the Bank of Hindustan (1770–1832), the General Bank of Bengal and Bihar (1773–75, established by Warren Hastings), and the Bengal Bank (1784–91).

1800s

Historically, the rupee was a silver coin. This had severe consequences in the nineteenth century when the strongest economies in the world were on the gold standard. The discovery of large quantities of silver in the United States and several European colonies resulted in a decline in the value of silver relative to gold, devaluing India's standard currency. This event was known as "the fall of the rupee."

India was unaffected by the imperial order-in-council of 1825, which attempted to introduce British sterling coinage to the British colonies. British India, at that time, was controlled by the British East India Company. The silver rupee continued as the currency of India through the British Raj and beyond. In 1835, British India adopted a mono-metallic silver standard based on the rupee; this decision was influenced by a letter written by Lord Liverpool in 1805 extolling the virtues of mono-metallism.

Following the Indian Mutiny in 1857, the British government took direct control of British India. Since 1851, gold sovereigns were produced en masse at the Royal Mint in Sydney, New South Wales. In an 1864 attempt to make the British gold sovereign the "imperial coin", the treasuries in Bombay and Calcutta were instructed to receive gold sovereigns; however, these gold sovereigns never left the vaults. As the British government gave up hope of replacing the rupee in India with the pound sterling, it realised for the same reason it could not replace the silver dollar in the Straits Settlements with the Indian rupee (as the British East India Company had desired). Since the silver crisis of 1873, a number of nations adopted the gold standard; however, India remained on the silver standard until it was replaced by a basket of commodities and currencies in the late 20th century.

1900s

In the autumn of 1917 (when the silver price rose to 55 pence).... there was danger of uprisings in India (against paper currency) which would handicap seriously British participation in the World War....In-convertibility (of paper currency into coin) would lead to a run on Post Office Savings Banks. It would prevent the further expansion of (paper currency) note issues and cause a rise of prices, in paper currency, that would greatly increase the cost of obtaining war supplies for export....To have reduced the silver content of this historic (Rupee) coin might well have caused such popular distrust of the Government as to have precipitated an internal crisis, which would have been fatal to British success in the war.

In 1939, Dickson H. Leavens wrote in his book SILVER MONEY: "In recent years the increased price of gold, measured in depreciated paper currencies, has attracted to the market (of London) large quantities (of gold) formerly hoarded or held in the form of ornaments in India and China".

The Indian rupee replaced the Danish Indian rupee in 1845, the French Indian rupee in 1954 and the Portuguese Indian escudo in 1961. Following the independence of British India in 1947 and the accession of the princely states to the new Union, the Indian rupee replaced all the currencies of the previously autonomous states (although the Hyderabadi rupee was not demonetised until 1959). Some of the states had issued rupees equal to those issued by the British (such as the Travancore rupee). Other currencies (including the Hyderabadi rupee and the Kutch kori) had different values.

The values of the subdivisions of the rupee during British rule (and in the first decade of independence) were:

1 rupee = 16 anna (later 100 naye paise)

1 ardharupee = 8 anna, or  ¹⁄₂ rupee (later 50 naye paise)

1 pavala = 4 anna, or  ¹⁄₄ rupee (later 25 naye paise)

1 beda = 2 anna, or  ¹⁄₈ rupee (later equivalent to 12.5 naye paise)

1 anna =  ¹⁄₁₆ rupee (later equivalent to 6.25 naye paise)

1 paraka =  ¹⁄₂ anna (later equivalent to 3.125 naye paise)

1 kani (pice) =  ¹⁄₄ anna (later equivalent to 1.5625 naye paise)

1 damari (pie) =  ¹⁄₁₂ anna (later equivalent to 0.520833 naye paise)

1 rupee = 16 anna

1 Athanni (dheli) =  ¹⁄₂ rupee

1 Chawanni =  ¹⁄₄ rupee

1 Dawanni =  ¹⁄₈ rupee

1 Anna/Ekanni =  ¹⁄₁₆ rupee

1 Taka/Adhanni =  ¹⁄₃₂ rupee

Paisa =  ¹⁄₆₄ rupee

Dhela =  ¹⁄₁₂₈ rupee ( ¹⁄₂ paisa)

Pie =  ¹⁄₃ paisa =  ¹⁄₁₉₂ rupee

Damari =  ¹⁄₄ paisa =  ¹⁄₂₅₆ rupee.

In 1957, the rupee was decimalised and divided into 100 naye paise (Hindi for "new paise"); in 1964, the initial "naye" was dropped. Many still refer to 25, 50 and 75 paise as 4, 8 and 12 annas respectively, similar to the usage of "two bits" in American English for a quarter-dollar.

International use

As the Straits Settlements were originally an outpost of the British East India Company, In 1837, the Indian rupee was made the sole official currency in the Straits Settlements, as it was administered as part of British India. This attempt was resisted by the locals. However, Spanish dollars continued to circulate and 1845 saw the introduction of coinage for the Straits Settlements using a system of 100 cents = 1 dollar, with the dollar equal to the Spanish dollar or Mexican peso. In 1867, administration of the Straits Settlements was separated from India and the Straits dollar was made the standard currency, and attempts to reintroduce the rupee were finally abandoned.

After the Partition of India, the Pakistani rupee came into existence, initially using Indian coins and Indian currency notes simply overstamped with "Pakistan". Previously the Indian rupee was an official currency of other countries, including Aden, Oman, Dubai, Kuwait, Bahrain, Qatar, the Trucial States, Kenya, Tanganyika, Uganda, the Seychelles and Mauritius.

The Indian government introduced the Gulf rupee – also known as the Persian Gulf rupee (XPGR) – as a replacement for the Indian rupee for circulation outside the country with the Reserve Bank of India (Amendment) Act of 1 May 1959. The creation of a separate currency was an attempt to reduce the strain on India's foreign reserves from gold smuggling. After India devalued the rupee on 6 June 1966, those countries still using it – Oman, Qatar, and the Trucial States (which became the United Arab Emirates in 1971) – replaced the Gulf rupee with their own currencies. Kuwait and Bahrain had already done so in 1961 with Kuwaiti dinar and in 1965 with Bahraini dinar, respectively.

The Bhutanese ngultrum is pegged at par with the Indian rupee; both currencies are accepted in Bhutan. The Nepalese rupee is pegged at ₹0.625; the Indian rupee is accepted in Bhutan and Nepal, except ₹500 and ₹1000 banknotes, which are not legal tender in Bhutan and Nepal and are banned by their respective governments, though accepted by many retailers. On 29 January 2014, Zimbabwe added the Indian rupee as a legal tender to be used.

East India Company, 1835

The three Presidencies established by the British East India Company (Bengal, Bombay and Madras) each issued their own coinages until 1835. All three issued rupees and fractions thereof down to  ¹⁄₈- and  ¹⁄₁₆-rupee in silver. Madras also issued two-rupee coins.

Copper denominations were more varied. Bengal issued one-pie,  ¹⁄₂-, one- and two-paise coins. Bombay issued 1-pie,  ¹⁄₄-,  ¹⁄₂-, 1-, 1 ¹⁄₂-, 2- and 4-paise coins. In Madras there were copper coins for two and four pies and one, two and four paisa, with the first two denominated as  ¹⁄₂ and one dub (or  ¹⁄₉₆ and  ¹⁄₄₈) rupee. Madras also issued the Madras fanam until 1815.

All three Presidencies issued gold mohurs and fractions of mohurs including  ¹⁄₁₆,  ¹⁄₂,  ¹⁄₄ in Bengal,  ¹⁄₁₅ (a gold rupee) and  ¹⁄₃ (pancia) in Bombay and  ¹⁄₄,  ¹⁄₃ and  ¹⁄₂ in Madras.

In 1835, a single coinage for the EIC was introduced. It consisted of copper  ¹⁄₁₂,  ¹⁄₄ and  ¹⁄₂ anna, silver  ¹⁄₄,  ¹⁄₃ and 1 rupee and gold 1 and 2 mohurs. In 1841, silver 2 annas were added, followed by copper  ¹⁄₂ pice in 1853. The coinage of the EIC continued to be issued until 1862, even after the Company had been taken over by the Crown.

Regal issues, 1862–1947

In 1862, coins were introduced (known as "regal issues") which bore the portrait of Queen Victoria and the designation "India". Their denominations were  ¹⁄₁₂ anna,  ¹⁄₂ pice,  ¹⁄₄ and  ¹⁄₂ anna (all in copper), 2 annas,  ¹⁄₄,  ¹⁄₂ and one rupee (silver), and five and ten rupees and one mohur (gold). The gold denominations ceased production in 1891, and no  ¹⁄₂-anna coins were issued after 1877.

In 1906, bronze replaced copper for the lowest three denominations; in 1907, a cupro-nickel one-anna coin was introduced. In 1918–1919 cupro-nickel two-, four- and eight-annas were introduced, although the four- and eight-annas coins were only issued until 1921 and did not replace their silver equivalents. In 1918, the Bombay mint also struck gold sovereigns and 15-rupee coins identical in size to the sovereigns as an emergency measure during the First World War.

In the early 1940s, several changes were implemented. The  ¹⁄₁₂ anna and  ¹⁄₂ pice ceased production, the  ¹⁄₄ anna was changed to a bronze, holed coin, cupro-nickel and nickel-brass  ¹⁄₂-anna coins were introduced, nickel-brass was used to produce some one- and two-annas coins, and the silver composition was reduced from 91.7 to 50 percent. The last of the regal issues were cupro-nickel  ¹⁄₄-,  ¹⁄₂- and one-rupee pieces minted in 1946 and 1947, bearing the image of George VI, King and Emperor on the obverse and an Indian tiger on the reverse.

Independent predecimal issues, 1950–1957

India's first coins after independence were issued in 1950 in 1 pice,  ¹⁄₂, one and two annas,  ¹⁄₄,  ¹⁄₂ and one-rupee denominations. The sizes and composition were the same as the final regal issues, except for the one-pice (which was bronze, but not holed).

Independent decimal issues, 1957–present

The first decimal-coin issues in India consisted of 1, 2, 5, 10, 25 and 50 naye paise, and 1 rupee. The 1 naya paisa was bronze; the 2, 5 & 10 naye paise were cupro-nickel, and the 25 naye paise (nicknamed chawanni; 25 naye paise equals 4 annas), 50 naye paise (also called athanni; 50 naye paise equalled 8 old annas) and 1-rupee coins were nickel. In 1964, the word naya(e) was removed from all coins. Between 1957 and 1967, aluminium one-, two-, three-, five- and ten-paise coins were introduced. In 1968 nickel-brass 20-paise coins were introduced, and replaced by aluminium coins in 1982. Between 1972 and 1975, cupro-nickel replaced nickel in the 25- and 50-paise and the 1-rupee coins; in 1982, cupro-nickel two-rupee coins were introduced. In 1988 stainless steel 10-, 25- and 50-paise coins were introduced, followed by 1- and 5-rupee coins in 1992. Five-rupee coins, made from brass, are being minted by the Reserve Bank of India (RBI).

Between 2005 and 2008 new, lighter fifty-paise, one-, two- and five-rupee coins were introduced, made from ferritic stainless steel. The move was prompted by the melting-down of older coins, whose face value was less than their scrap value. The demonetisation of the 25-(chawanni) paise coin and all paise coins below it took place, and a new series of coins (50 paise – nicknamed athanni – one, two, five and ten rupees, with the new rupee symbol) were put into circulation in 2011. Coins commonly in circulation are one, two, five and ten rupees. Although it is still legal tender, the 50-paise (athanni) coin is rarely seen in circulation.

The coins are minted at the four locations of the India Government Mint. The ₹1, ₹2, and ₹5 coins have been minted since independence. Coins minted with the "hand picture" were minted from 2005 onwards.

Minting

The Government of India has the only right to mint the coins and one rupee note. The responsibility for coinage comes under the Coinage Act, 1906 which is amended from time to time. The designing and minting of coins in various denominations is also the responsibility of the Government of India. Coins are minted at the five India Government Mints at Mumbai, Alipore (Kolkata), Saifabad (Hyderabad), Cherlapally (Hyderabad) and NOIDA (UP). The coins are issued for circulation only through the Reserve Bank in terms of the RBI Act.

Commemorative coins

After independence, the Government of India mint, minted coins imprinted with Indian statesmen, historical and religious figures. In year 2010 and 2011 for the first time ever ₹75, ₹150 and ₹1000 coins were minted in India to commemorate the Platinum Jubilee of the Reserve Bank of India, the 150th birth anniversary of Rabindranath Tagore and 1000 years of the Brihadeeswarar Temple, respectively. In 2012 a ₹60 coin was also issued to commemorate 60 years of the Government of India Mint, Kolkata. ₹100 coin was also released commemorating the 100th anniversary of Mahatma Gandhi's return to India. Commemorative coins of ₹125 were released on 4 September 2015 and 6 December 2015 to honour 125th birth anniversary of Sarvepalli Radhakrishnan and B. R. Ambedkar respectively.

Convertibility

Officially, the Indian rupee has a market-determined exchange rate. However, the RBI trades actively in the USD/INR currency market to impact effective exchange rates. Thus, the currency regime in place for the Indian rupee with respect to the US dollar is a de facto controlled exchange rate. This is sometimes called a "managed float". Other rates (such as the EUR/INR and INR/JPY) have the volatility typical of floating exchange rates, and often create persistent arbitrage opportunities against the RBI. Unlike China, successive administrations (through RBI, the central bank) have not followed a policy of pegging the INR to a specific foreign currency at a particular exchange rate. RBI intervention in currency markets is solely to ensure low volatility in exchange rates, and not to influence the rate (or direction) of the Indian rupee in relation to other currencies.

Also affecting convertibility is a series of customs regulations restricting the import and export of rupees. Legally, foreign nationals are forbidden from importing or exporting rupees; Indian nationals can import and export only up to ₹7,500 at a time, and the possession of ₹500 and ₹1,000 rupee notes in Nepal is prohibited.

RBI also exercises a system of capital controls in addition to intervention (through active trading) in currency markets. On the current account, there are no currency-conversion restrictions hindering buying or selling foreign exchange (although trade barriers exist). On the capital account, foreign institutional investors have convertibility to bring money into and out of the country and buy securities (subject to quantitative restrictions). Local firms are able to take capital out of the country in order to expand globally. However, local households are restricted in their ability to diversify globally. Because of the expansion of the current and capital accounts, India is increasingly moving towards full de facto convertibility.

There is some confusion regarding the interchange of the currency with gold, but the system that India follows is that money cannot be exchanged for gold under any circumstances due to gold's lack of liquidity; therefore, money cannot be changed into gold by the RBI. India follows the same principle as Great Britain and the US.

Reserve Bank of India clarifies its position regarding the promissory clause printed on each banknote:

"As per Section 26 of Reserve Bank of India Act, 1934, the Bank is liable to pay the value of banknote. This is payable on demand by RBI, being the issuer. The Bank's obligation to pay the value of banknote does not arise out of a contract but out of statutory provisions.The promissory clause printed on the banknotes i.e., "I promise to pay the bearer an amount of X" is a statement which means that the banknote is a legal tender for X amount. The obligation on the part of the Bank is to exchange a banknote for coins of an equivalent amount."

Chronology

1991 – India began to lift restrictions on its currency. A number of reforms removed restrictions on current account transactions (including trade, interest payments and remittances and some capital asset-based transactions). Liberalised Exchange Rate Management System (LERMS) (a dual-exchange-rate system) introduced partial convertibility of the rupee in March 1992.

1997 – A panel (set up to explore capital account convertibility) recommended that India move towards full convertibility by 2000, but the timetable was abandoned in the wake of the 1997–1998 East Asian financial crisis.

2006 – Prime Minister Manmohan Singh asked the Finance Minister and the Reserve Bank of India to prepare a road map for moving towards capital account convertibility.

Historic exchange rates

For almost a century since the Great Recoinage of 1816 until the outbreak of World War I, the Indian rupee sustained parity with the US dollar while pegged to the pound sterling that was exchanged at ₹4 12a 10ps (or 50 old pence per rupee). Effectively, the rupee bought 1s 4d (or ₹15 per sterling) during 1899–1914. The gold silver ratio expanded during 1870–1910. Unlike India, her colonial master Britain was on gold standard. To meet the Home Charges (i.e., expenditure in England) the colonial government had to remit a larger number of rupees and this necessitated increased taxation, unrest and nationalism.

Thereafter, both the rupee and the sterling gradually declined in worth against the US dollar due to deficits in trade, capital and budget. In 1966, the rupee was devalued and pegged to the dollar. The peg to the pound was at ₹13.33 to a pound (approx. 40 rupees to £3), and the pound itself was pegged to US$4.03. That means officially speaking the USD to INR rate would be closer to ₹4. In 1966, India changed the peg to dollar at ₹7.50.