They say money makes the world go round. In an attempt to not sound very cliche, as a firm of chartered accountants, we must agree with the fact that a method of safe and uniform exchange was required as society evolved into what we have in the current day. India was known and is still known as the hotbed of extremely precious metals, spices, cloth, and raw materials. When we, as a country, realized bartering was no longer viable, we moved into the currency mode of exchanges, or to be more specific, it led to the birth of the Indian Rupee.
So, where does the word “Rupee” come from? Rupee stems from the Sanskrit word “Rupyakam” which means “Silver Coin”. The current Rupee however owes its origin to “Rupiya” initially issued by Sher Shah Suri in 1540–55. Post Sher Shah Suri’s Rupiya, the earliest paper rupees were issued by the Bank of Hindostan, General Bank of Bengal, and Bihar and Bengal Bank over the years of 1770–1832.
Up until the end of World War I and almost toward World War II, there was no countrywide uniform printing of currency. The setting up of the Reserve Bank of India (RBI) in 1935 allowed for centralized printing and circulation of banknotes. Up until independence, the RBI focused on issuing banknotes for Rs. 5, Rs. 2, and Rs. 1. The rupee denomination was split into 100 paise in 1957. There was more printing of banknotes during the war periods pre and post-independence due to metal shortage.
The 500 rupee — note, a note of prime importance, was introduced in 1987 due to a growing economy and fall in purchasing power. In 1996, at the advent of liberalization, privatization, and globalization, we saw the introduction of the Mahatma Gandhi series of banknotes. These notes saw a change in the watermark, windowed security thread visible under UV light, latent imaging, and intaglio features for the visually handicapped.
In the year 2010, it was observed that almost all currencies around the world had a symbol by which they were denoted but the Indian Rupee was the only one without a symbol. For this, the government announced a countrywide competition to obtain a uniform symbol for the Rupee which would be printed on all their currency notes. D. Udaya Kumar, head of design at IIT Guwahati, produced a design that highlighted the roots of the letter “R” and brought out elements of the tricolour flag and therefore his design was selected.
The new currency notes with the symbol of the INR were printed and circulated. Post this in 2015, demonetization was done by the Modi Administration to minimize black money that was in circulation and curb money laundering efforts by larger businesses. Whether the effort was a success or failure, it was one of the largest demonetization efforts in the history of a democratic nation. The circulation of 1,000 and 500 Rupee notes was removed and replaced with 500 and 2,000 Rupee notes.
In 2019, the RBI released its newest notes which are in circulation till the present day. A fun tidbit about these new notes is that they are in the denominations of INR 10, 20, 50, 100, 200, 500, and 2,000 and a majority of these notes feature UNESCO heritage sites on the back of the note except for the INR 2,000 note which features the mars orbiter mission.
Rupee and the Future
What’s the performance of the Indian Rupee been like?
Before independence, the Indian Rupee was valued at INR 1 = USD 1. However, today we see that INR 74.21 = USD 1. Why is this the case?
Due to the Indo-Pak and Indo-china wars post-independence, the Indian government struggled under the burden of war finance requirements and this devalued the Indian currency. The Indian Government at the time also wanted to promote exports to other countries like the USSR, United States, and parts of Europe and thereby devalued their currency voluntarily. Till 1966, the Indian Rupee remained constant at INR 4.76 to 1 USD.
However, the post-war economy was struggling, and thereby, the government applied to the World Bank for a loan and when they could not receive any loans, they further devalued their currency to INR 7.5 to 1 USD. The devaluation of the currency in 1966 was especially felt in the Gulf countries. These countries depended on currency printing by the RBI but post this devaluation and currency exposure, they went ahead and started printing their currency to avoid vulnerability to the Indian currency.
In the 1990s, due to the collapse of the USSR, the Gulf War and the resignation of two prime ministers the Indian economy was at its worst and this affected the Indian currency. Indian exports declined by almost 20% and the price of fuel skyrocketed. To resolve this financial crisis, the Indian government took an emergency loan from the IMF for $2.2 Billion in lieu of 67 tonnes of Indian sovereign gold. Post this, the RBI further devalued the currency by 20%, thereby once again weakening the Indian currency.
Two points of major currency fluctuation for the Indian Rupee were seen in the global recession of 2008 when the INR appreciated to almost INR 39 to 1 USD and currently in 2020, COVID -19, which saw a loss of livelihoods and jobs for a large section of the population. The withdrawal of foreign portfolio investors in the Indian market is also creating additional pressure currently on the Indian rupee.
So, what’s the future for the Indian rupee?
Although we can all hope that the Indian rupee stabilizes in the near future. We can never go back to the 1 INR to 1 USD measure because of the slow development, poverty, and existing debt of the country. The Indian rupee is becoming recognized worldwide as a formidable currency as India progresses to become a superpower among nations.