What Is Paper Money? All You Need To Know About

  • Published on: 18 Dec 2023
What Is Paper Money? All You Need To Know About

With paper money replacing heavy coins, carrying and circulating money becomes easier. As a legal tender, paper currency holds its value even in the digital age. It will continue to do so in the near future.

Given this, you need to know the history behind the origination of paper money and how it works. Know that the Reserve Bank of India (RBI) is the authorised entity involved in the production and distribution of currency in India. 

Continue reading to understand the definition of paper money, how it works, its printing process in India and more. 

What is Paper Money? 

Paper money is an authorised medium of exchange for goods and services. Also called paper currency or bank notes, the country’s central bank regulates the printing and circulation of this medium, as RBI does for India. 

Brief History of Paper Money in India

Paper notes were first introduced in 1717 AD by the British East India Company, replacing the Mughal copper and silver coins. The Bank of Hindostan General Bank in Bengal and the Bengal Bank issued these currencies under British rule. 

As the popularity of paper notes started increasing in the 18th century, the currency featured the British Queen. The notes included the bank name and denomination in Urdu, Bengali and Nagri. 

With the Paper Currency Act of 1861, the British government established paper currency as a legitimate document with the ‘Victoria Portrait Series’ notes. These notes were available in denominations of ₹10, ₹20, ₹50, ₹100 and ₹1,000 and printed at India’s first currency printing press in Nasik. 

After independence, India replaced the image of British rulers on the note with the Lion Capital of Ashoka at Sarnath, first printed on a ₹1 note. It wasn’t until 1996 that the Mahatma Gandhi series of paper notes were printed and circulated in the country.

How is Currency Printed in India? 

To produce Indian currency, manufacturers use 100% pure cotton, made by formulating 75% cotton with 25% linen. This ensures that the currency lasts longer, which is then added to an adhesive solution to increase its shelf life further. These notes have many security features, such as a watermark, micro lettering, security thread, intaglio, etc. 

All currencies currently circulating in the Indian economy will always be printed in these four printing presses. Security Printing and Minting Corporation of India Ltd. (SPMCIL) manages two of these, which control the press in Dewas (Madhya Pradesh) and Nashik (Maharashtra). 

Furthermore, Bharatiya Reserve Bank Note Mudran Private Ltd. (BRBNMPL) manages two of these presses located at Salboni (West Bengal) and Mysuru (Karnataka). 

How Does Paper Money Work?

Now that you are aware of the meaning of paper money, learn how it works. In the twenty-first century, paper currency only has a face value, as most paper money is fiat. This means they are not backed by physical commodities like gold and silver. Rather, they have a value banked by the stability of the issuing government.  

As paper money is a legal tender, the currency holder can make payments in exchange for goods and services. But that’s not all. You’ll be surprised to know that the currency’s stability depends on the stability of the government and the economy. Moreover, the value of currency depends on the exchange rates. 

So, if there’s a higher amount of paper currency in circulation, it will directly affect inflation as it can reduce its value. Hence, the RBI monitors the printing and circulation of money to keep inflation under control. 

Knowing all these details gives you an insight into the value of paper money, which can help you understand its effects on the economic climate. 

As the cost of printing these currencies falls on government treasuries, digital transactions will help channelise allocated funds towards developmental programs and investments that generate revenue. So, using cashless transactions can help contribute towards a better economy. 

One of the classic ways to initiate cashless transactions is using credit cards. And what’s a better option than the Fibe Axis Bank Credit Card, which allows you to make UPI-based transactions without hassle. 

This numberless credit card adds an extra layer of security to your card, letting you enjoy up to a 3% cashback on every transaction. So, download the Fibe App from the Google Play Store or App Store and apply now! 

FAQs on Paper Money 

What do you mean by paper money?

Paper money is the official currency of a country with a fixed value issued by the central bank. It allows you to make transactions in exchange for goods or services. 

How does paper money work?

It works as a legal tender backed by the government issuing the currency. While it does not have any intrinsic value, it is a crucial tool to maintain the flow of funds in an economy. 

Why is paper money important?

Historically, physical currency has been used to make transactions. It allows you the freedom to receive goods/services without involving any third parties. Furthermore, people who are not tech-savvy can make payments effortlessly with paper money.

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