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The story so far: RBI Governor Shaktikanta Das had said during the last speech of the Monetary Policy Committee (MPC) that the Supreme Banking Regulator, in collaboration with the banks, would launch a pilot project to assess the functioning of an ATM based on a QR code.
What is the project about?
Simply put, the vending machines would dispense coins with the required amount debited from the customer’s account using the United Payments Interface (UPI) instead of physically delivering the notes. Customers would have the ability to withdraw coins in the required quantities and denominations. The central idea here is to facilitate accessibility to parts.
On the supply side, T. Rabi Shankar, Deputy Governor of the Reserve Bank of India (RBI) had said that the coin situation was “peculiar” with a “very high” supply. “It takes up a lot of storage space and it’s not properly distributed. At the same time, there is a demand in the pockets,” added the Deputy Governor.
The proposed mechanism for coin dispensing would deviate from conventional machines that relied on banknotes to facilitate coin exchanges. In addition, the proposed machine would eliminate the need for physical delivery of banknotes and their authentication. It was observed that the currency introduced into the machines (for coin exchange) was often fake and could not be verified at the time. Thus, the mandate to eliminate the physical delivery of banknotes. The pilot project is initially expected to be rolled out to 19 sites in 12 cities across the country. With a focus on ease and accessibility, the machines are intended for installation in public places such as stations, shopping malls and markets.
Are coins important in our ecosystem?
According to the latest RBI bulletin, the total circulating value of rupee coins stood at ₹28,857 crore as of December 30 last year. This is an increase of 7.2% over the previous year. Small coin circulation remained unchanged at ₹743 crore. For perspective, coins in India are issued in denominations of 50 paise, one rupee, two rupees, five rupees, ten rupees and twenty rupees. Coins up to 50 paise are called “small coins” while those of one rupee and above are called “rupee coins”.
The above figures could be compared to the volume of digital payments till December 2022, which stood at around ₹9,557.4 crore, according to the Digidhan dashboard. The number includes Mobile Banking, Internet Banking, IMPS, BHIM-UPI and NEFT among others. The reliance on UPI for coin distribution is particularly noteworthy, and it is worth remembering that the payment interface for feature phones was launched in March last year. The apex regulator is also in the midst of a pilot project for central bank digital currency (CBDC).
Does this go against the digital push?
According to Vipul Kharbanda, a nonresident researcher at the Center for Internet and Society (CIS), the proposal should not be seen as a “zero-sum game between digital and money”. The two can easily complement each other. “This should not be considered from a very dogmatic point of view, but rather pragmatic. If digitization does not solve a particular problem at that particular moment, it is well within RBI’s remit to use other available means to achieve its ultimate goal of making the country’s monetary system work,” explains Mr. Kharbanda.