Why does RBI consider coins as Asset but notes as Liability!

If one goes through the balance sheet of RBI, one can observe that Notes issued by RBI come under the Liability section while “Coins” are classified as Assets. Seems confusing, right? Let’s explore the rationale behind this.

The RBI Act,1934 gives Reserve Bank of India the sole right to issue bank notes in India. Section 34 of the act further stipulates that the Issue Department of RBI will have as liability an amount equal to the total of the amount of the currency notes i.e. each note (with one exception as detailed later in the article) which is printed becomes a liability of the RBI.

This is also illustrated by the promissory clause printed on the banknotes i.e., “I PROMISE TO PAY THE BEARER THE SUM OF…..” which is signed by the Governor of Reserve Bank of India. This liability of RBI is further guaranteed by Government of India as per Section 26 of the RBI Act, 1934.

Sample Currency Note

For coins however the issuance process is different. The responsibility of minting and issuing coins remains with the Government of India under The Coinage Act, 2011.

Government has further submitted an undertaking under the RBI Act to exclusively circulate the coins into the economy via RBI. As part of the circulation process, RBI buys the minted coins from the government and hence the coins come and sit under the asset section of RBI’s balance sheet.

Coming to the exception mentioned in the paragraph above, Government of India has also retained the right to print the lowest denomination of note (i.e. one rupee note). Rupee is the unit of currency in India – the note for this is printed by Indian government and signed by Finance Secretary.

One Rupee Note image highlighting with signature of Finance Secretary

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10 thoughts on “Why does RBI consider coins as Asset but notes as Liability!

  1. Excellent graphical information giving in’s & out of India’s structured finance, a well thought initiative, it indeed an need of the hour

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