Why in News?

• The Reserve Bank of India (RBI), through its currency-printing arm Bharatiya Reserve Bank Note Mudran Pvt. Ltd. (BRBNMPL), has invited global Expressions of Interest (EOI) for supplying Biaxially Oriented Polypropylene (BOPP) polymer substrates with advanced security features.
• This marks India's most significant move towards introducing polymer (plastic) banknotes since the proposal was first made in 2009.

What’s in Today’s Article?

• Why is RBI Considering Polymer Currency?
• Economic Rationale
• Environmental Dimensions
• Unanswered Questions
• Historical Evolution and Global Experience
• Way Forward
• Conclusion

Why is RBI Considering Polymer Currency?

• Greater durability:
  • Polymer notes last 2.5–4 times longer than conventional cotton-paper notes.
  • Lower denominations such as ₹10 and ₹20, which experience the highest circulation and physical wear, are likely to be introduced first.
  • Longer lifespan reduces the frequency of replacement under the RBI's Clean Note Policy.
• Better security against counterfeiting:
  • Polymer banknotes can incorporate advanced security features such as -
    • Transparent windows
    • Metallic numerals
    • Magnetic pseudo-threads
    • Holograms
    • Shadow images
    • Iridescent patterns
    • Durable tactile markings for visually impaired persons
  • These features are significantly harder to replicate than those on paper currency.
• Improved currency management: Although manufacturing costs are higher initially, fewer replacement cycles can reduce printing expenditure, transportation costs, storage and logistics costs, and destruction of soiled notes.

Economic Rationale:

• Current cost of currency management:
  • RBI spends roughly ₹5,000 crore annually on printing and maintaining currency.
  • Security printing expenditure: ₹5,101 crore (FY2023-24), ₹6,373 crore (FY2024-25), and ₹4,875 crore (FY2025-26).
  • India destroys 20–24 billion soiled notes annually, largely lower denominations.
• Cost challenges:
  • Polymer notes cost 30–60% more to manufacture than paper notes.
  • In several countries, production cost for low-value polymer notes has reached 20–24% of their face value.
  • Additional transition costs include recalibration of ATMs, currency sorting machines, vending machines, and cash-processing infrastructure.

Environmental Dimensions:

• Potential benefits: A TERI study commissioned by RBI found that -
  • Longer circulation life reduces manufacturing and transportation requirements.
  • Over the complete lifecycle, polymer notes may have a lower overall carbon footprint than paper notes.
  • End-of-life polymer notes can be recycled into plastic products.
• Concerns:
  • Polymer is produced from polypropylene, a petroleum-based products.
  • Higher initial carbon footprint.
  • Need for specialised recycling facilities.
  • Dependence on fossil fuel-derived raw materials raises sustainability concerns.

Unanswered Questions:

• Dependence on petrochemical imports:
  • Polymer substrate is made from BOPP (Biaxially Oriented Polypropylene).
  • India imports around one-fifth of its polypropylene requirement.
  • Volatility in crude oil prices, aggravated by geopolitical tensions (especially West Asia), could increase manufacturing costs.
  • This is despite planned domestic capacity expansion by companies such as Reliance Industries and Indian Oil Corporation.
• Relevance in an increasingly digital economy:
  • India's payment ecosystem presents a paradox - UPI processes over 24,000 crore transactions annually, accounting for nearly 85% of retail digital payments.
  • Yet, currency in circulation has exceeded ₹41 lakh crore (2025–26), compared to around ₹16–17 lakh crore a decade earlier.
  • The Currency-to-GDP ratio remains above 11%, indicating sustained demand for cash despite rapid digitalisation.
  • Reasons for continued cash demand: Large informal economy, limited digital infrastructure in rural areas, and cash remains essential for financial inclusion and small-value transactions.

Historical Evolution and Global Experience:

• Evolution:
  • 2009: RBI first proposed polymer ₹10 notes.
  • 2012:
    • Pilot planned in Kochi, Mysuru, Jaipur, Bhubaneswar and Shimla to test diverse climatic conditions.
    • The project was later shelved due to technological challenges and the disruption caused by 2016 demonetisation and subsequent currency redesign.
  • 2026: BRBNMPL's global EOI revives the proposal, with field trials expected to begin for ₹10 and ₹20 notes.
• Global experience:
  • Australia pioneered polymer currency and has fully transitioned to it.
  • Around 60 countries now use polymer banknotes in some form, including Canada, United Kingdom, New Zealand, Mexico, Brazil, Saudi Arabia, Romania, and Barbados.
  • Their experience indicates improved durability, enhanced security and lower lifecycle costs despite higher initial production expenses.

Way Forward:

• Begin with limited pilot projects in lower denominations before nationwide adoption.
• Encourage domestic production of polymer substrates to reduce import dependence.
• Conduct comprehensive cost-benefit and environmental impact assessments (EIAs).
• Upgrade ATM and cash-handling infrastructure in a phased manner.
• Ensure coexistence of paper and polymer notes during transition without demonetisation.
• Align currency reforms with India's broader objectives of Digital India, financial inclusion, and efficient cash management.

Conclusion:

• India's move towards polymer currency represents an attempt to modernise its cash ecosystem by improving durability, security and lifecycle efficiency. However, concerns warrant a cautious, evidence-based rollout.
• The objective should not be merely replacing paper with plastic, but creating a cost-effective, secure and sustainable currency system suited to India's evolving payment landscape.