Even on a peak summer day in May, it is easy to notice long queue of people scrambling, outside the office of Reserve Bank of India in Kolkata, for one the most circulated commodity around —small denomination coins, of one two and five rupees.
RBI opens up its counters every morning for exchange of high denomination notes with coins, but over the last six months the wait for the small metal pieces is just getting longer. The wait is not without reason. In fact, it is a business of sorts.
Adjacent to the RBI premises sit scores of people who buy coins and sell them with huge premium. Over the last three months the price of small denomination coins in gray market has shot up by almost double. Thus, while three months ago, hundred coins of one rupee were selling at a premium of Rs 10, at present same coins cost Rs 20. Notably, it is illegal to sell coins, as they can only be exchanged.
One of the key reasons for sudden demand and supply-mismatch for coins is the recent RBI decision to curtail bulk issuance of coins to traders through its offices. Coins are issued from three sources in India—RBI offices, bank branches and currency chests, which facilitates distribution of coins in remote areas.
Earlier, traders like big retailers, hoteliers and bus syndicates use to get coins directly from RBI counters. However, over the last three months, RBI has stopped distribution of coins from its offices, which is in sync with it policy to withdraw from all sorts of retail operations.
Notably, in the monetary policy statement in April, RBI had said that it intended to channelize the distribution of bank notes and coins only through currency chests and bank branches. In keeping with the policy, RBI has already started phasing out the job of distribution of coins through its offices. For example, the Kolkata office of RBI issues only limited number of coins to public. The number of coins issued at RBI office in the city has come down from 400 bags (of 2000 coins each) to around 150 bags in the last three months, said sources.
What is aggravating the shortage of coins, is the absence of proper infrastructure and lack of awareness in bank branches in distribution of coins. Thus, while traders are now entitled to get coins only from the currency chest in their respective areas of operation, but they prefer buying coins --- a move which has fuelled the illegal business of sale of coins.
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“Prices of coins have up substantially in the last three months, as RBI is no longer issuing coins to traders,” says , a coin seller operating outside the RBI office for the last five years, but still reluctant to divulge the details of his trade.
“The intention of not distributing coins through RBI is probably that Central Bank wants to move out of all sorts of retail operations. However, banks neither have the expertise or infrastructure to distribute coins, which has led to supply demand mismatch like never before,” said Asit Bhattacharya, secretary, All India Reserve Bank Employee Association, Kolkata.
Short Supply
While the RBI move has spiked prices of coins, shortage of coins is not new.
According to RBI data, 1.12 lakh million pieces of coins of value Rs.12, 628 crores were in circulation in March 2011. Interestingly, it has been alleged coins are often being misused for purposes like metal extraction. With the rising cost of metals, the RBI has also been reducing the metal content of coins. Thus, the new 50 paise coins are now reduced to the size of 25 paise coins, which were earlier phased out by the government. In fact, RBI had stopped issuing copper nickel coins of one rupee, way back in the 90's, whereas issuance of pure nickel coins were stopped in the 70's.
At present Re 1 copper nickel will have metal value of Rs 2.50, while Re 1 nickel coin could be worth Rs 10, said sources.
“At present only 25-30 per cent of coins in circulation would be made of copper nickel, whereas the number of nickel coin is less than 5 per cent,” said Ravi Shankar Sharma, Secretary, Numismatic Society of Calcutta.
In view of the shortage of coins, RBI has been increasing minting of coins, but large number of the coins are lost in oblivion.
“There have been RTI applications on the reasons behind the shortage of coins. In fact, it is worth inquiring about the large number of coins in store in temples. Also, there are allegations that coins are being melted and send to Bangladesh for making blades,” said a source in a government organisation.