The Indian rupee refers to India’s national currency and is represented by ISO code INR. It is regulated by the Reserve Bank of India (RBI), the country’s central bank. The Indian rupee is named after the “rupiya,” a silver coin issued for the first time in the 16th century.
India’s economy used to be cash-based, resulting in the circulation of counterfeit currencies by those involved in criminal activity. Over the years, RBI was compelled to change and upgrade INR notes with new security features. Generally, large denominations are the most forged bills. In 2016, the Government of India declared the demonetization of all notes in denominations of 500 INR and 1000 INR of the Mahatma Gandhi Set.
At the beginning of 1830, the English exerted a significant influence in India. The Coinage Act of 1835 made a standardized coinage possible in the country. The new version of the coins featured the effigy of William IV on the original side and the denomination on the reverse, written in Persian and English.
On the other hand, coins issued after 1840 bore a portrait of Queen Victoria. In 1862, the first coin issued under the crown was authorized. The Coinage Act of India, which regulates the establishment of mints and the issuance of coins, was passed in 1906 and is still in force today.
Historically, the rupiya was a silver coin. It resulted in significant implications in the 19th century when the world’s largest countries were under the gold standard. The discovery of huge volumes of silver in the European colonies and the U.S. sparked the panic of 1873. It led to the devaluation of silver compared to gold, resulting in a fall in India’s standard currency value.
The condition during the Second World War led to Quaternary Silver Alloy replacing the regular rupee. The coins produced in 1940 were substituted in 1947 by pure nickel coins. India gained its independence on August 15, 1947. However, the prevailing currency remained frozen until January 26, 1950, when the country adopted its own constitution. In 1957, India introduced a decimal currency scheme where 100 paise formed a rupee.
In 2016, the government decided to demonetize 500 and 100 INR notes, arguing that it would curb the underground economy, rendering it even more difficult to use illicit and counterfeit cash to finance crime and terrorism. Following the move, the RBI declared the issuance of new notes of denominations 500 and 2000 INR in a new Mahatma Gandhi series.
As of April 2019, the latest circulated notes included denominations of 5 INR,10 INR, 20 INR, 50 INR, and 100 INR notes of the Mahatma Gandhi Old Series and the 10 INR, 20 INR, 50 INR, 100 INR, 200 INR, 500 INR and 2000 INR notes of the Mahatma Gandhi New Series. The new series of INR notes contains various micro-printed texts, such as “Bharata” and “RBI,” in different locations.
Officially, INR’s exchange rates are determined by the market. However, the RBI aggressively deals in the USD/INR currency market to influence the exchange rate. As a result, the currency system in place for INR compared to the USD is a regulated exchange rate. It is often called a “managed float.”
Other exchange rates, such as INR/JPY and EUR/INR, are subject to fluctuations characteristic of floating exchange rates. As a result, it generates arbitrage opportunities against the exchange rates.
Successive governments through RBI prefer not to pursue a strategy of pegging the INR to a particular foreign currency at a specific exchange rate. RBI’s interference in currency markets is primarily intended to make sure that the exchange rate volatility is low.
