Sunday, May 12, 2013

RBI's Plastic Rupee

RBI is all set to launch its plastic rupee notes on an experimental basis in Kochi, Mysore, Jaipur, Bhubaneswar and Shimla. Initially they are going to issue one billion pieces of 10 rupee notes. RBI governor Subbarao gave this reason for his choice of plastic notes: the central bank was trying to introduce plastic currency, as they have longer shelf life. It is estimated that every year something like 20% of total paper notes (some 2 lakh crore rupees) get soiled and had to take out of circulation to dispose it off. RBI is saying, that introduction of plastic (or polymer) currency notes will help them tackle this problem of soiled notes! RBI is giving another excuse, that because other central bankers - Australia is the pioneer [sic] - are already experimenting with plastic notes, so they will also imitate them. Another reason, which seems to be the major one, is that, these notes can be produced at a faster rate than paper notes! No wonder RBI and other central planners want to use plastic notes! Central bankers exist to print and produce lots of money (i.e., inflation).

I had a big smile of my face when I read this news few days ago. People who know the theory and history of money (see, Menger, Mises, Davies, and Money Museum) will immediately realize the idiocy of such crazy innovations. I understand there is nothing wrong in introducing plastic currency notes per se, but to call it money is absurd. These currency notes are not money because they are not backed by any real commodity money like Gold or Silver. These notes are in circulation only because of government's legal tender laws. They are forced on people by the politicians.
If the goal of RBI is to give people a choice of money which can last long - has a longer shelf life - then the clear choice are precious metals, Gold and Silver. No other money can last as long as these two metallic money. They were formed at the time of formation of Earth itself some 4.5 billion years ago, and since that time they were lying in Earth's crust to be found out by humans some 6000 years ago (see this). The chemical properties (see this) and human yearning for them made these two metals winners in the historical competition between different monies. Free market participants chose them as money because of their unique money like properties. Paper, plastic, leather etc., are no match against these two metals. What India needs is a 'pure gold standard (even a Silver standard will do), and not some plastic currency notes!
But, I know, people, mostly academicians and mainstream Ph.D. economists, will say, that the supply of Gold is scarce so it can't function as money. It seems their Keynesian university econ degrees have killed their thinking power. They don't understand, that scarce supply is a necessary prerequisite for any commodity to become money in the market. Scarce supply of commodity money is a good thing. We don't have to worry about Gold's supply because it's purchasing power will adjust according to the transaction needs of market participants. People who argue about scarce supply of money easily forget, that money is also a commodity whose value is determined by its demand and supply.

This policy of RBI will go in history as yet another lunatic scheme of central planners. When some future Charles Mackay will write another edition of Extraordinary Popular Delusion and the Madness of Crowds, he will surely include this scheme in his list.

For present we hapless subjects of the Indian state will have to get ready for yet another experiment on us by the central planning social engineers.

UPDATE: News are coming in that Canada is already facing problems with their newly introduced plastic - they call it polymer - currency notes (here). There are already fake (counterfeit) plastic notes circulating in the Canadian market! People are so confident of these phony plastic notes, that they are not even checking fake notes before accepting them! There you go. And RBI is telling, that these plastic notes will be secure! The important thing is, that the RBI notes themselves are fake. RBI is a giant legal counterfeiting machine. Real money is Gold and Silver.  

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