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RBI decides to demonetise small coins from June 30 – Pros and cons.
The Reserve Bank of India has decided to demonetise small coins of values up to 25 paise from June 30. The RBI has asked people to exchange their small coins holdings, if any with coins of higher denomination or bank notes. This article deals explains the face value and intrinsic value of coins and how small coins come to have high intrinsic value. The article also tells how it will be more costly for the coin collectors to pursue their hobby.
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How valueless coins become valuable sometimes.
• Many of us keep aside the very small coins which are no more marketable is some corner of the house thinking that they would be of no use. Such small coins which we think are of no value to us any more may also be thrown away by us. But we never know that the same coins which we thought as useless or valueless sometimes turn to be valuable for us. This is what is going to happen when the Reserve Bank of India (RBI), the central bank and monetary authority of India demonetizes these small coins and their intrinsic values shoot up to very high levels and we get more value for these coins which we regarded as valueless.
Reserve Bank of India has decided to demonetise small coins up to 25 paise
• Reserve Bank of India, the central monetary authority of our country has taken a decision to demonetise the coins of 2, 3, 5, 10 and 20 paise from June 30, 2011. As a result, these small coins will cease to be legal tender from that date. These small coins were introduced in the monetary market as legal tender about 54 years ago. At the same time, the Reserve Bank of India has advised the people holding these small coins, if any, to exchange them with the higher denomination coins or bank notes.
The story of naya paisa which was later termed as paisa
• The Central Government had introduced the concept of naya paisa way back in 1957 when the government changed over the decimal system of coinage and calculation of money. In the same year, the government introduced small coins of denominations of 1, 2, 3, 5, 10 and 25 paise. The coin of 50 paise was also brought into the market the same year. These small coins had value at that time since we could buy articles with low price tags with these coins. Gradually the prices rose in the market over the number of years and these small coins automatically ceased to be circulated in the market. However, the Reserve Bank of India for the reasons best known to the authorities did not demonetize these coins then even if they had no value in the market as the traders stopped accepting them. The Reserve Bank of India has now decided to withdraw these coins up to 25 paise by demonetising them from June 30, 2011.
• It is a known fact that the Reserve Bank of India had stopped minting the small coins up to 25 paise stage by stage as and when they stopped circulating in the market. However these coins remained a legal tender since the government did not think of demonetising them and they continued to legal tender without and value to the holders of these coins. So from July 1, 2011 India will stand in line with a few more countries in the world where small coins are no longer in circulation. Several countries of the world continue the use of small coins for certain historical and economic reasons. Some sections of the Indian society have protested the official withdrawal and demonetisation of these coins citing historical reasons. They are of the view that the naya paisa and the decimal series were introduced by the Independent India and should have continued as a symbol of India's historical legacy. The government needed not to mint these coins due to increased costs of minting them but the RBI should not have withdrawn these symbols of historical value from the people though they don't have any intrinsic value.
Face value and intrinsic value of coins
• The coins have two values. The one is the face value of the coin which is printed on the coin. The other value of the coin is its intrinsic which is the actual value of the coin when you sell it in the open market. As the cost of the living index increases, the cost of the metal used in the minting of the coin also increases. So, with the increasing cost of metal in the market, the intrinsic value of the coin increases many times than its face value.
• According to numismatics, the intrinsic value of a 25 paise coin must be Rs10 now and that is forty times of its face value. They are of the view that already the intrinsic value of the one paise coin is Rs.5 which is about 500 times of its face value. It is reported that all other coins proposed to be withdrawn by the government have intrinsic values ranging between Rs.5 and Rs.10
Intrinsic value of small coins likely to increase more after RBI withdraws some of them
• There is likelihood that some of the small coins in the hands of the people might be exchanged at their face value at the offices of the RBI or some other designated branches of the commercial banks. The resultant effect will be that these small coins, some of which may be left with the public would become a scarce commodity. These will then become rare and difficult to acquire even by the some of the collectors of the rare coins. The degree of difficulty in obtaining a coin will push up its price to a very high level. In that case, if a coin collector wants to collect any coin of a small denomination which has been demonetised, he / she has to shell out a very high price for the same.
• Well knowing the fact that the intrinsic value of the small coins is much more than their face value, it would be advisable for the RBI to pay at least the intrinsic value of the coins in exchange and not the face value of the coins so exchanged. The benefit of keeping the coins with them should go to the people who own them and to the government.
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