Arjun Singh Rathore
What’s your favorite time of year? For many of us, the answer is Deepawali. It’s the time of year when good little boys and girls, young women and men, housewives and working-men, businessmen and service class receive advance salaries, bonus, festival advances, higher sales, good bargains and off course presents they’ve been wanting all year long.
But why wait until Deepawali? If you want that new car, clothing, doll& toys, or tablet computer, why don’t you just buy it? If you’re like most of the middle class, the answer probably has something to do with a little thing we call money.
“The only permanent thing in this world is change”, as one saying goes. Currency is no exception. It went through a lot of changes with different societies contributing to make currency the modern money we know and love.
In the beginning of humankind, there was no money. To get goods, people traded items which had a practical value. It may be in the form of food (cattle, fish), apparel (fur, cloth), decorative item, tools, weapons or services. This was called “bartering”. It is defined as the exchange of resources or services for mutual advantage. Even today, the system of bartering is still being used by some individuals and organizations.
The first and oldest form of money (9000-6000 BC) is actually cattle. It included cows, camels, goats and other animals. The biggest advantage of cattle is that it allows the seller to set a price. It even brought upon the early formation of the concept of standard pricing. For example, two goats were traded for one cow as cows were deemed to be more valuable than goats.
In 1200 BC Cowrie shells, shell of a mollusk, were widely available in the waters of the Pacific and Indian Ocean. More than just a decorative piece, it was first used as money in China during the Shang dynasty. Due to the inspiration from cowrie shells, China began to manufacture bronze and copper cowrie shells imitations in 1,000 BC. This was considered as the earliest forms of metal coins.
500 BC saw the birth of modern silver coins in Sardis, the ancient Lydia (Turkey). The coins were created from electrum which is made up of natural alloy of Gold and Silver. In 118 BC came the Leather money consisted of pieces of white deerskin about one foot square with colorful borders. It served as the first type of documented banknote in China.
The paper currency appeared for the first time in 806 AD during the regime of Tang Dynasty, which was addressed as ‘Flying Cash’. Since it was actually money certificates made of paper, and it had a tendency to blow away, so it was referred as Flying Cash. However, the flying cash was not official and the real modern day paper currency was introduced several years later during the Song Dynasty.
Over the course of the millennia that have transpired since currency first came into use, the way Indians use money has undergone many transformations. Firstly after demonetisation and now since the pandemic of Covid arrived, they have shown how there has been a push towards a digital economy, but the love for cash refuses to fade. From cowrie shells and gold coins to paper notes and the modern digital methods – the history of payments in India is varied and intriguing. As the RBI rolls out the new currency variant of Rs 200 denomination in the Indian currency system, we trace its evolution from the earliest days of recorded history.
In the history of Indian currency the word ‘rupee’ has been derived from the Sanskrit word rupyakam, meaning a silver coin. It owes its origin to rupiya, issued by Sher Shah Suri in 1540-45. Today, the Reserve Bank of India issues currency under the RBI Act 1934.
Cowrie shells, found abundantly in the Indian Ocean, were among the earliest forms of currency used in the world. In India, they were colloquially referred to as kaudi and were used in certain areas like Odisha even until the early 1800s.
The Indo-Greek kings introduced new types of coins that influenced Indian coinage for many centuries to come. The Kushanempire, which existed from the first to third centuries CE, began minting gold coins which featured mythological deities. The Gupta empire, from 320-470 CE, produced the largest number of gold coins in Indian history, which is why it is often referred to as the ‘golden period’. Coins continued to take on various forms through the subsequent dynasties in India – from the Rajput and Mughal empires in the North to the Maratha and Vijayanagara kingdoms in the South.
It was Sher Shah Suri who, during his five-year rule from 1540-1545, introduced to the nation a new currency which is the ancestor of the modern-day Rupee. After defeating Humayun and taking over the Mughal Empire in 1540, Suri set up a new civic and military administration that issued a silvr coin termed the Rupiya, which remained in circulation even during the remainder of the Mughal Period as well as during the Maratha era. The Rupiya remained the dominant standard currency even during the British Raj, despite the East India Company’s efforts to introduce the Sterling Pound in India as early as the 1600s. But the coins issued in Western India (Bombay and Surat) and South India (Madras) provinces differed from their northern counterparts in both design and metrology.
In the late 18th century, silver and gold coins gave way to hundis, bonds, and shares, and paper currency was introduced in India for the first time. Both private and semi-government Presidency Banks could print notes – the General Bank of Bengal and Bihar (1773-75) and The Bank of Hindostan (1770-1832) were among the earliest issuers of paper currency in India. In 1861, the Government of India enacted the Paper Currency Act which granted it a monopoly over the issue of notes and ended the issuance of notes by private and Presidency Banks. Subsequently, the ‘Victoria Portrait Series’ of notes – in denominations of Rs. 10, 20, 50, 100, and 1,000 – entered circulation.
The Indian Independence Movement soon began gathering steam, and its nationalist and economic strategy arm, the Swadeshi Movement, made a big impact on Indian banking. Inspired by the message of reviving domestic processes and products, businessmen and politicians founded several local banks – Canara Bank, Bank of India, Corporation Bank, Indian Bank, and Bank of Baroda, to name a few – for the Indian community from 1906 to 1911.
Soon after, the British Empire faced an acute shortage of silver due to the outbreak of World War I in 1914 and hence began issuing paper currency of smaller denominations (one and two Rupees) hitherto issued only as coins. Meanwhile, India got its first printing press in Nashik in 1928 which soon began printing currency for the entire country.
After the First World War the Central Legislative Assembly, acting on the guidelines recommended by the 1926 Royal Commission of Indian Currency and Finance, set up the Reserve Bank of India to separate the control of currency and credit from the government and to regulate banking and note issuance throughout the country.
The RBI was formally inaugurated on April 1, 1935, with its Central Office at Calcutta (now Kolkata) which was relocated to Bombay (now Mumbai) in 1937. A year later, the apex bank issued its first series of notes which now bore a portrait of the new British monarch – George VI. The Five Rupee note was the first one to be issued in this series and Rs. 1, 2, and 10,000 notes were subsequently added to the pre-existing denominations.
When the Republic of India was established on January 26, 1950, the portrait of George VI on the Rupee note was replaced by an image of the Ashoka Pillar. This currency remained in circulation unchanged until The High Denomination Bank Notes (Demonetisation) Act, 1978. Under this law,the Indian Parliament halted the use of high-denomination banknotes of Rs. 1,000, 5,000, and 10,000 which were undermining the Indian economy due to their use in illegal financial transactions.
It was in 1996 that the first notes bearing the picture of Mahatma Gandhi were printed. These notes, which featured upgraded security measures and tangible aids for the visually impaired, remain in circulation even today, with the exception of the Rs 500 and Rs 1,000 notes which were replaced after the 2016 Demonetisation.
By the 1960s, the Indian banking industry was a large employer and played a key role in augmenting the country’s economy. Since the banks in India, with the exception of the State Bank of India, were owned by private entities, the government led by the then prime minister Mrs.Indira Gandhi decided to nationalise the banking industry. The Parliament passed the Banking Companies (Acquisition and Transfer of Undertakings) Bill, 1969 and nationalised 14 of the country’s largest commercial banks with effect from July 19, 1969. In 1980, the government further nationalised six more commercial banks after which it controlled around 91 percent of the Indian banking industry.
The Indian banking sector underwent yet another upheaval a decade later. Facing an economic crisis in 1991 – caused in large part due to the USSR collapse and the Gulf War – India introduced liberalisation policies that allowed the entry of private banks into the country. HSBC Bank, ICICI Bank, HDFC Bank, and UTI Bank (now Axis Bank) ushered in a new era for the Indian banking sector. HSBC was the first bank to set up an Automated Teller Machine (ATM) in India; it did so in Mumbai in 1987. Soon, ATMs began spreading through the country and ‘plastic money’, in the form of debit cards and credit cards, slowly began gaining popularity as well.
Computerisation first entered the Indian banking industry in 1988, and internet banking in the 1990s. But it was only in the 2000s when online payment systems – like Electronic Funds Transfer (EFT), Real Time Gross Settlement (RTGS), National Electronic Funds Transfer (NEFT), and Interbank Mobile Payment System (IMPS), started being used.
While NEFT and other forms of online payment required a computer and often featured lengthy transaction times, the new wave of e-payments brought about by digital wallets has made transferring money a lot easier and quicker. Since internet availability and smartphone usage have become virtually ubiquitous, e-wallets likePayU, Paytm, and MobiKwik are being used by millions for financial transactions, both personal and commercial.
The government too is pushing its ‘cashless economy’ missive with the Unified Payments Interface (UPI) system backed up by the BHIM app, an Aadhaar-based mobile wallet which can be used to make digital payments directly from bank accounts.
The demonetisation move by the NarendraModi-led government in 2016, followed by Covid pandemic in 2020 saw a sharp uptake in cashless transactions.The mobile wallet transactions recorded a 114 percent rise, Point of Sale (PoS) transactions an 88 percent rise, and mobile banking transactions a 30 percent rise. The total digital transactions in India went up by 23 percent.But in a country whose economy was 90 percent cash-reliant pre-demonetisation, cash remains the most commonly used medium for financial transactions.Unlike digital payments, which rely on a steady internet connection and acceptance from both buyer and seller, cash is quick, easy, and instantly available for further offline transactions. That makes it the mode of payment of choice for Indians right now. This is unlikely to change until the digital infrastructure in the country is improved to the extent that every Indian, no matter how remote their location, can make digital transactions as easily as they can pay with cash.
Digital payments themselves are evolving with the inception of cryptocurrency. Since they are a decentralised and highly secure form of money, currencies likeBitvoin, Ethereum, and Monero are rapidly gaining popularity around the world. While it may take a while for them to be accepted as a formal currency by the world’s governments, they are undoubtedly the next step in this long evolution of payments.
The dreams of digital India are still far-fetched! Seeing the current state of affairs, the dream for a digitally literate India appears like one of the first-world problems. Changing age-old norms and behavioral patterns are going to take a lot of effort than demonetizing currency notes. Indians are used to spending and saving in cash, for the simple reason of avoiding taxes and convenience.
In future, more such efforts are called for. Instead of banning cash, it is going to help the cause of Cashless India, if we are able to incentivise and pull users towards the cashless economy.
(The author is Executive Manager & Branch Head at JK Bank Marble Market, Jammu)
Cash, the Crowned King Journey of Money from Kaudis to Digital Payments
Arjun Singh Rathore