a higher note
By Dr. Kavan Ratnatunga
The Central Bank of Sri Lanka, in a press release dated December
23, 2005, justified the need to issue higher denomination currency
notes, and stated that a Rs. 2000 note has been printed. Now almost
four months later, we are still to see it in circulation.
you may have noticed that the currency notes even of a higher denomination
in circulation now are quite dirty. Without the anticipated release
of the Rs. 2000 note, the Central Bank has been forced to reuse
dirty notes, which would have normally been removed from circulation.
highest denomination currency notes are generally for use in large
cash transactions and should not be seen in normal circulation.
For example in the USA, the US$ 100 and 50 don't circulate much.
If you were to give a US$ 100 currency note in a grocery store,
the cashier would take the note to the supervisor for approval of
acceptance. In Sri Lanka, however, you could be using a Rs. 1000
note in almost any environment.
Central Bank of Sri Lanka first issued the higher denomination currency
notes of Rs. 500 and Rs. 1000 in 1981. In 1981 the exchange rate
to the US$ was Rs. 16.75 and the Rs. 1000 and Rs. 500 notes were
worth about US$ 60 and US$ 30. Today these same denominations are
worth under US$ 10 and US$5. In India the highest denomination note
is Indian Rs. 1000, which is worth about US$ 25.
you take the per capita GDP, USA has a per capita GDP which is over
10 times that of Sri Lanka after it is normalised by the Purchasing
Power Parity (PPP) of the currency in the local economy. The highest
denomination in USA is $100, and the per capita GDP would seem to
imply that Sri Lanka should be able to manage with a US$ 10 or Rs.
1000 note. So what is the real justification of the Rs. 2000 note
largest useful denomination really depends on the size of the largest
cash transactions. In USA the $ 20 note is the highest in general
circulation. Higher denomination currency notes are not needed,
because large transactions are most often done by personal cheque
or credit card.
Lanka cash is used a lot more since credit card penetration is not
much, and personal cheques are hardly accepted by any shop or restaurant.
Cash is also probably used for many other reasons, and as a consequence
there is an urgent need for much higher denomination currency notes,
at least the Rs. 2000 note.
the widespread development of the banking system and use of cheques,
there was the need for currency notes of a very large denomination
to be able to inconspicuously transport large amounts of cash. In
fact the main reason for the invention of currency notes a few hundred
years ago, was to avoid the need to transport gold and silver at
the risk of being robbed.
Till 1942 there was a Rs. 1000 note, which at that time was worth
80 gold sovereigns or a million rupees in today’s currency.
There was even a Rs. 10,000 note issued in 1947 for inter-bank transactions.
efficient banking system has removed the need for very high denomination
notes. The Rs. 100 note was the largest denomination for a long
time, since the Central Bank of Ceylon was established in 1950,
and was worth about 2.5 gold sovereigns in the early 1950s. With
electronic transfers for many transactions, we are heading toward
a coin and currency-less society. However, that is in the distant
third world future.
risk of forgery is the major drawback for high denomination currency
notes. With modern computer technology, forgeries of the Rs. 1000
and Rs. 500 notes would go unnoticed by the public in a bundle of
notes, although easily identified by closer inspection of the security
features. This is the reason for the elaborate designs on currency
notes were issued with pictorial designs for the first time on February
1, 1941. The first note had an image of an elephant's head with
a mahout on the reverse matching that found on the front of the
Rs. 1000 note. The two-rupee currency note had an image of the Sigiriya
Rock. It is strongly rumoured that the new Rs. 2000 note, which
has been printed has Sigiriya on it to match the old series.
1852 the British gold sovereign was made legal tender in Ceylon
and was the coin of largest denomination that was legal tender in
the island. In the early 1940s, a sovereign was worth about Rs.
13, while it is worth over Rs. 13,000 today.
the Rs. 1000 note was reintroduced in 1981, that was then worth
about half a sovereign. So the main justification for the Rs. 2000
note is the purchasing power of the currency as reflected by the
price of gold. The largest denomination note needs to be about the
price of half a gold sovereign now worth over Rs. 7000. Interestingly
even a thousand years ago, the largest denomination in Lanka was
a Kahavanu made with about half a sovereign of gold.
writer maintains an educational website on two thousand years of
Lankan coins at http://lakdiva.org/coins/ and is Vice President
of the Sri Lanka Numismatic Society