There are two major factors why we are facing this shortage in the change currency:
1. Misuse of the coins supplied
There are various stories and reports where they have described the misuse of the coins by
melting it and using the metal for trading and other purpose , notable example is exporting it to Bangladesh for making Blades
hoarding of the coins and selling it at a premium price later
2. Shortcomings in the supply system:
Shortage of Production:
In 2011-12, the RBI ordered 1.6 billion one rupee pieces but 1.48 billion were supplied. It also ordered 1 billion 10 rupee pieces but only received 403 million.
Problem with the distribution system:
Even though RBI has allotted Regional Issue offices/sub-offices of the Reserve Bank and a wide network of currency chests and coin depots maintained by banks and Government treasuries spread across the country for coin distribution, there are several operational issues each of the main stakeholders of the system are facing.
V. Murugesan who runs a grocery store in Kilpauk says: “I need coins amounting to Rs. 15,000 every month. But my bank provides me just about Rs. 3,000 in coins. I am forced to source loose change from agents who charge a 10 per cent commission. I have no option as I cannot deny change to customers.”
“Commission agents from Tirupati get us the change on a regular basis. We pay TDS for the commission we pay. At present, we are paying a commission of 14 per cent. Banks supply coins only once a month, and that too, for a maximum of Rs. 20,000, which is inadequate,” the source says.
Some merchants source coins from temples. “Not all bank branches have counters to distribute coins or exchange soiled notes. Many people like me get coins from a temple in Anna Nagar and avoid the queues in banks,” says S. Shankaran.
A bank official in a public sector bank in Avadi says: “We source 10-15 bags of coins of various denominations a month. At least four persons, including armed security guards, need to travel to carry the heavy sacks of coins. The lack of staff members and the cost involved in the trips have forced us to limit the trips.”
# 1. Everyday at the end of the day, most of us keep the entire day's coins (collected back after each transaction) in our homes, and never carry it back the next day. This certainly accumulates a lot of coins in our houses, and hence a shortage. (in-convenience factor)
# 2. We do not feel the pinch of not getting back the 1, 2 or 5 rupee coins, instead we are given back the chocolates or something equivalent to make up for those 1,2 or 5 rupees. (not much value)
# 3. People are stocking these coins to be sold at premium. Shopkeepers buy these coins at a massive premium, sometimes as high as 14~20% (hoarding)
# 4. Banks have a quota of issuing only certain amount of coins per trader. (Supply side issue)
# 5. Some people smuggle coins to countries like Bangladesh for the metal value. (For the old 20 paisa coins, there were getting out 25 value by extracting the aluminium). (arbitrage opportunity).
However, I am not yet convinced that why do we have such a shortage of coins in India. For sure these reasons are too small to create a nation-wide shortage. I am sure some time soon I will get the right answer.