Plastic currency: Switching to polymer bank notes can help manage costs

The Reserve Bank of India’s (RBI’s) decision, as reported by this newspaper, to revive plans for polymer banknotes deserves careful attention. At first glance, the move may appear unnecessary at a time when India has emerged as a global leader in digital payments. Yet the data suggests otherwise. Far from rendering cash obsolete, India’s digital-payment revolution has been accompanied by a steady rise in currency usage. The challenge before the central bank, therefore, is to make the circulation of currency more efficient, secure and sustainable. The RBI’s latest Annual Report underscores this reality. The currency in circulation grew by over 11 per cent in 2025-26, almost double the previous year’s growth rate of 5.8 per cent, even as digital payments continued their rapid expansion. In other words, digital and cash payments are coexisting rather than substituting each other. Managing this growing stock of currency is becoming increasingly expensive. Expenditure on printing banknotes rose to more than ₹6,300 crore in 2024-25. At the same time, nearly 24 billion soiled notes were withdrawn from circulation, highlighting the operational burden of replacing worn-out currency. Lower-denomination notes, which change hands frequently, are especially vulnerable to deterioration. It is, therefore, sensible that the RBI is considering a pilot involving ₹10 and ₹20 notes. The share of notes of lower denomination too needs to be increased. It is not difficult to argue that the availability of lower-denomination notes often affects transactions.

 

Polymer notes are made of a thin plastic substrate that is more resistant to moisture, dirt and tearing. While the initial cost of printing polymer currency is higher, international experience suggests that the overall economics is favourable. Since polymer notes last significantly longer, fewer replacement notes need to be printed, transported, processed and destroyed. The savings are the greatest for low-value denominations. Australia’s experience in this context remains noteworthy. The pioneer of polymer currency, it estimates that the switch generated substantial long-term savings through lower replacement and handling costs. Earlier, Australia’s paper notes of lower denominations lasted only six-12 months, whereas polymer notes lasted several years. Countries such as Canada, the United Kingdom, New Zealand, and Singapore too have adopted polymer notes, citing durability, enhanced security, and lower lifecycle costs. Advanced security features such as transparent windows and micro-optic elements make polymer notes more resistant to counterfeiting. The environmental argument is equally compelling. Studies undertaken by central banks abroad have found that polymer notes consume fewer resources over their lifetime. Besides, retired polymer notes can also be recycled into other plastic products. Certainly, these gains are worth considering.

 

Thus, upfront costs, ATM calibration, cash-handling infrastructure, and public acceptance will need to be carefully assessed. India’s earlier attempt to introduce polymer notes in 2012 faltered because of technological constraints, specifically the inability of legacy ATMs and counting machines to accurately detect, handle and dispense the plastic substrates. Polymer notes will also relieve users of the considerable inconvenience of regularly handling soiled and torn notes, particularly of lower denominations, given that it is not always easy to get them exchanged.