| policy frameworks of | |various central banks.

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| |2009 | | |University of Economics- Wroclaw | | | | | |Satish Kumar M.

K Masters in Finance | | |Yr-1 | |Monetary Policy Project | |India’s Monetary Policy during recession, Currency Management by Reserve Bank of India and the summary of Monetary policy frameworks of | |various central banks. Contents: Introduction of Reserve Bank of India and brief summary of India’s Economic profile:2-5 How was India impacted by the global financial crisis? 5-7 How did monetary policy of India respond to the crisis? 7-11 Conclusion12 Economic Offence/Crimes: Surge of counterfeits notes and the steps taken by reserve bank of India in the area of currency Management. 13-17 Part-2 monetary policy frameworks Monetary Policy Committee- Monetary Policy Target: 18-19 Monetary Policy Communication:19-21 Market Operations: Other discretionary functions: 21-25 Currency distribution and handling. Glossary:26Reference:27 Introduction of Reserve Bank of India and brief summary of India’s Economic profile: [pic] Establishment: Reserve Bank of India. The Reserve Bank of India was established on April 1, 1935 in accordance with the provisions of the Reserve Bank of India Act, 1934. The Central Office of the Reserve Bank was initially established in Calcutta but was permanently moved to Mumbai in 1937. The Central Office is where the Governor sits and where policies are formulated. Though originally privately owned, since nationalization in 1949, the Reserve Bank is fully owned by the Government of India.

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Preamble: The Preamble of the Reserve Bank of India describes the basic functions of the Reserve Bank as: “… to regulate the issue of Bank Notes and keeping of reserves with a view to securing monetary stability in India and generally to operate the currency and credit system of the country to its advantage.

” | | Central Board: The Reserve Bank’s affairs are governed by a central board of directors. The board is appointed by the Government of India in keeping with the Reserve Bank of India Act. Appointed/Nominated for a period of four years.Constitution: Official Directors: Full-time: Governor and not more than four Deputy Governors. Non-Official Directors: Nominated by Government: ten Directors from various fields and one government Official and Others, four Directors – one each from four local boards Local Boards: One each for the four regions of the country in Mumbai, Calcutta, Chennai and New Delhi Main Functions: Monetary Authority: • Formulates implements and monitors the monetary policy. • Objective: maintaining price stability and ensuring adequate flow of credit to productive sectors. Regulator and supervisor of the financial system: Prescribes broad parameters of banking operations within which the country’s banking and financial system functions.

• Objective: maintain public confidence in the system, protect depositors’ interest and provide cost-effective banking services to the public. Manager of Foreign Exchange: • Manages the Foreign Exchange Management Act, 1999. • Objective: to facilitate external trade and payment and promote orderly development and maintenance of foreign exchange market in India. Issuer of currency: • Issues and exchanges or destroys currency and coins not fit for circulation.

Objective: to give the public adequate quantity of supplies of currency notes and coins and in good quality. Developmental role: • Performs a wide range of promotional functions to support national objectives. Related Functions: Banker to the Government: performs merchant banking function for the central and the state governments; also acts as their banker. • Banker to banks: maintains banking accounts of all scheduled banks. With this brief introduction, I would like to address on two areas of concern of which India is facing today and Reserve Bank of India responses to tackle the same. ) How and why was India Impacted by the Global Financial Crisis? How did monetary policy of India respond to the crisis? 2) Economic Offence/Crimes, surge of counterfeits notes and the steps taken by reserve bank of India in the area of currency Management? How was India impacted by the global financial crisis? The subprime crisis that emerged in the US housing mortgage market in 2007 Snow balled into a global financial crisis, and a global economic recession followed. The Financial landscape has changed significantly after the collapse of Lehman Brothers in September 2008.

An important lesson, post-September 2008, is that irrespective of the degree of globalization of a country and the soundness of its domestic policies, a financial crisis could spread to every economy. The direct effect of the global financial crisis on the Indian banking and financial system was almost negligible, thanks to the limited exposure to riskier assets and derivatives. The relatively low presence of foreign banks also minimized the impact on the domestic economy. However, the crisis did have knock on effects on the country, broadly, in three ways.First, the reduction in foreign equity flows – especially FII flows – impacted the capital and forex markets and the availability of funds from these markets to domestic businesses.

Second, the shrinking of credit markets overseas had the impact of tightening access to overseas lines of credit including trade credit for banks and corporates. Both these factors led to pressure on credit and liquidity in the domestic markets with the knock on effects. And the third, the fall in global trade and output had impact on consumption and investment demand.The cumulative impact of all this was a slowing down of output and employment.

Despite the slowing down, India is still the second fastest growing economy in the world. Moderation in growth After clocking an average of 9. 4 per cent during three successive years from 2005-06 to 2007-08, the growth rate of real GDP slowed down to 6. 7 per cent (revised estimates) in 2008-09. Industrial production grew by 2.

6 per cent as compared to 7. 4 per cent in the previous year. In the half year ended March 2009, imports fell by 12. 2 per cent and exports fell by 20.

0 per cent.The trade deficit widened from $88. 5 billion in 2007-08 to $119. 1 billion In 2008-09. Current account deficit increased from $17. 0 billion in 2007-08 to $29. 8 billion in 2008-09. Net capital inflows at US$ 9.

1 billion (0. 8 per cent of GDP) were much lower in 2008-09 as compared with US$ 108. 0 billion (9. 2 per cent of GDP) during the previous year mainly due to net outflows under portfolio investment, banking capital and short-term trade credit. As per the estimate made by the RBI in its Annual Policy announced on April 21, 2009, GDP is expected to grow by 6 per cent in 2009-10.

Under the impact of external demand shocks, the Indian economy witnessed moderation in growth in the second half of 2008-09 in comparison with the robust growth performance in the preceding five years (8. 8 per cent per annum). The deceleration in growth was particularly noticeable in negative growth in industrial output in Q4 of 2008-09 – a decline for the first time since the mid-1990s.

Refer table below; this was on account of erosion of external demand which affected industrial performance – a reflection of increasing globalization of the Indian industry.The transmission of external demand shocks was swift and severe on export growth, which deteriorated from a peak rate  of about 40 per cent in Q2 of 2008-09 to  (-) 15 per cent in Q3 and further to (-) 22 per cent in Q4 – a contraction for the first time since 2001-02. |Table : Key Macroeconomic Indicators – India | |Indicators |2008-09: Q1-Q4 |2009-10: Q1-Q2 | |  | |Year |NIC |Increase over previous |NIC Increase over previous | |(As at end of March) |(Notes in circulation) |year |(Notes in circulation) |year | | |(Pieces) |(per cent) |(Value) |(per cent) | |2001 |35,704 |- |2,12,460 |8. 3 | |2002 |38,338 |7.

4 |2,44,655 |15. 1 | |2003 |37,309 |- 2. |2,75,096 |12.

4 | |2004 |38,336 |2. 8 |3,19,761 |16. 2 | |2005 |36,984 |-3. 5 |3,61,227 |13. 0 | |2006 |37,851 |2. 3 |4,21,911 |16.

8 | |2007 |39,831 |5. 2 |4,96,138 |17. | |2008 |44,225 |11. 0 |5,81,598 |17. 2 | |2009 |48,963 |10. 7 |6,81,113 |17. 1 | | | | | | | Counterfeit Notes in circulation |Year |FICN detected |Value |Notes in Circulation(NIC) |FICN as |No. f FICN per | |  |(Number of pieces) |(In Rupees) |(Million pieces) |% to NIC |million NIC | |2000-01 |102687 |3,28,59,860 |35,704 |0.

000288 |3 | |2001-02 |124515 |3,37,78,270 |38,338 |0. 000325 |3 | |2002-03 |211754 |3,51,74,760 |37,309 |0. 00568 |6 | |2003-04 |205226 |2,76,12,540 |38,336 |0. 000535 |5 | |2004-05 |181928 |2,43,79,460 |36,984 |0. 000492 |5 | |2005-06 |123917 |1,76,75,150 |37,851 |0.

000327 |3 | |2006-07 |104743 |2,31,90,300 |39,831 |0. 00263 |3 | |2007-08 |195811 |5,49,91,180 |44,225 |0. 000443 |4 | |2008-09 |398111 |15,57,05,000 |48,963 |0. 000813 |8 | |Note: Data are exclusive of the counterfeit notes seized by police and other enforcement agencies. | Notes: The jump in the detection of counterfeit notes during 2008-09 is attributable to: – (i)   Detection of 76,273 pieces at the currency chest at Dumariaganj. ii) Installation and putting into effective use of Note Sorting Machines (NSMs) at all currency chests, which has led to increase in detection at such chests. V. In recent times, the media has been erroneously quoting Nayak Committee having estimated the forged notes in circulation to be around Rs 1,69,000 crore.

The Group notes that the RBI appointed Nayak Committee (1988) did not make any estimate of forged notes; the figure of Rs 1, 69,000 crore refers to projection made by the Committee of actual total notes in circulation in the year 2000.In fact the actual total notes in circulation when the Nayak Committee submitted its report was Rs 38,600 crore  compared to Rs. 1,96,157 crore in 2000 and  Rs.

6,81,113 crore  as at the end of March 2009. Against this the number of notes detected through the banking system as forged ranged from 3 notes in a million to 8 in a million in the nine year period ending March 2009,and this is one of the lowest in the world. Summary of main recommendations of the Group: After detailed deliberations and interaction with major banks, leading anufacturers and suppliers of Note Sorting Machines/Desktop Sorters as well as Cash-in-Transit (CIT) companies, the High level Group makes the following main recommendations: (A) Measures for facilitating detection of counterfeit notes and maintaining quality of notes in circulation (i) Note Sorting Machines (NSMs) / Desktop Sorters may be installed in all bank branches in a phased manner for early detection of counterfeit notes.

(ii) Banks may ensure the quality of the notes fed in ATMs. They may conduct periodic audit of the agents used for outsourcing this activity viz. the CIT companies.Banks may switch over to the ‘cassette swap’ system for feeding the ATMs.

New ATMs installed may be provided with in built note detectors. Over a period existing ATMs may also be required to have in built note detectors. (iii) Performance parameters of NSMs may be standardized by RBI to ensure that all NSMs installed adhere to the laid down standards for detection of counterfeit notes. (iv) RBI may ensure that the plan for withdrawal of notes of old series is implemented strictly as formulated and that the new series of banknotes with more robust security features be introduced as early as possible.RBI may also facilitate R and D efforts for development of new security features. (v) Where any person inadvertently in possession of counterfeit notes up to five (5) pieces tenders the same at a bank counter, the requirement of filing FIR may be done away with. A simple report may be filed with the branch which in turn may include this in the Counterfeit Currency Report (CCR) to FIU-IND / RBI. (vi) RBI may review the system of incentives and disincentives for detection and disclosure of counterfeit notes while assisting the enforcement agencies in dealing appropriately with those involved in making and distribution of ounterfeit notes.

(B)   Measures relating to cash holding and distribution (vii) RBI may stipulate suitable cash holding limits for all currency chests beyond which the cash should necessarily be moved to a chest with larger limits or to RBI. (viii) Each RBI office may undertake a review of the requirement of currency chests in their jurisdiction based on  the volume and nature of transactions, accessibility of the chest and other factors including security so as to rationalize the number of chests and upgrade the facilities thereat for better security and efficiency. ix) To tap advantages arising out of economies of scale,  minimize overnight cash risks at bank branches and to benefit from sophisticated logistics techniques banks may be encouraged to establish Currency Processing Centers, which should be permitted to charge other banks for processing services. (x) As NSMs have to be installed at all branches for sorting notes before dispensation, banks will have to make necessary investments. The cost of such investments will need to be recovered from the bulk tenderers of cash.

Banks may put in place a transparent policy  for such charges of cash handling/processing with the approval of their respective boards  as already advised by RBI vide its DBOD directive DIR. BC. 86 / 13. 10. 00 dated September 7, 1999.

(xi) RBI may take initiatives in promoting use of cards and electronic means of payment. (C) Measures for strengthening security systems and procedures: (xii) RBI may explore enlisting the services of a specialized and dedicated force / other approved agencies to provide security at chests and for movement of treasure. xiii) RBI may explore up gradation of the security systems in currency chests and RBI vaults incorporating electronic bio-metric access, electronic locking of bins, and surveillance through Closed Circuit Television (CCTVs). Networking of CCTVs at chests within the jurisdiction of a controlling office of the bank may be explored for better surveillance.

(xiv) Tamper-proof shrink wrapping of soiled notes with bar coding of details of the branch remitting them may be introduced. (xv) A system of quarterly security audit of currency chest branches by controlling offices may be introduced.Comprehensive guideline / format may be prepared by RBI /IBA. (xvi) A system of risk based inspection of currency chests may be introduced by banks / RBI taking into account various parameters for evaluating the extent of risk. (xvii) Banks may draw up a contingency plan / disaster management plan in consultation with local police. (xviii) RBI may explore the possibility of introducing a defacing system of self inking / marking of banknotes in transit or in chests, which would automatically trigger-in if there is an attack / attempted robbery/ theft etc.

D)   HR Measures: (xix) Banks may modify their transfer pricing policy or equivalent policy so as to pass on the benefit on account of having a currency chest to the branch where the chest is maintained. (xx) Rotation of staff posted at currency chests may be ensured to prevent vested interest and entrenched non adherence of laid down systems and procedures. (xxi) Where deviations and irregularities are found, controlling offices may take immediate punitive action after fixing accountability.

xxii) Bank may accord recognition to currency handling operations as a sensitive and skilled activity and provide necessary incentives and training. Part- 2 Monetary policy frameworks: Under this heading I will be focusing on the three main aspects of monetary policy framework. Monetary Policy Committee, Monetary policy communication and Market Operations. Monetary Policy Committee- Monetary Policy Target: By analyzing the 14 central banks with respect to different criteria of Monetary Policy Framework, it is reasonably fair to conclude the below points with respect to Monetary Policy Target.Inflation and maintaining price stability is the main Monetary Policy target for most of the central banks. Australia and Brazil emphasize more on achieving the inflation target.

In case of Brazil achievement of Inflation targets set by the Government is a major mandate in relation to Monetary policy. One Institution, namely the Hong Kong Monetary Authority targets on exchange rate or band. It ensures that the operation of the currency Board arrangements is in accordance with the policies determined by the financial secretary in consultation with Exchange Fund Advisory Committee EFAC.Canada: Even though Inflation targets are agreed jointly by the Government of Canada and the Bank of Canada for a five year period. The primary objective of Canada’s monetary policy is to enhance the well-being of Canadians by contributing to sustained economic growth, rising levels of employment and improved living standards. Japan: The Major Mandate in relation to Monetary Policy for Japan is determining or altering the followings: Discount rates, and the types and conditions of bills to be discounted;Loan rates, and the types, conditions, and value of collateral to be used for loans. Reserve requirement ratios, the base date and other conditions of Reserve Deposit Requirement System; Guidelines for money market control; Types, terms, and other conditions of bills or bonds to be used for money market control; Bank of Japan’s view on currency and monetary control, including its basic view on economic and monetary conditions USA: maintains dual mandate, to promote price stability and Maximum sustainable employment.

A recent study by Central Bank Governance Network (CBGN) shows Countries with high historical levels of inflation have tended to favor the adoption of clear rules for monetary control, either of the inflation targeting, exchange rate or money supply variety. A sizeable number of those countries are represented in the slightly more than 60% of central banks that publish a numerical intermediate target. Conversely, countries that have enjoyed monetary stability and credibility in the past have perhaps not felt under as much pressure to introduce a numeric rule.Almost 40% of respondents operate either under non-numerical objectives or under more complex arrangements that can be partly numeric and partly qualified by other considerations. Monetary Policy Communication: The communication becomes very critical with the countries with multiple set of objectives, and it is evident that almost all central banks are transparent about their monetary policy frameworks. Having a clearly specified and singular central bank objective facilitates the task of communicating with the public.

However, a single-minded focus on the achievement of that objective is by no means sufficient to guarantee a central bank’s credibility and legitimacy. Central banks that move to a single target framework as a means of bringing inflation under control must undertake a major marketing effort to educate the public about their new strategy. That effort is likely to be protracted given the time required for monetary policy to work its way through market expectations and the real economy.

Central banks operating under complex (or hybrid) arrangements probably face an even more significant challenge in communicating their thinking, particularly when their legally mandated objectives would require divergent monetary actions. This could be the case when the existence of a real and nominal economic objective calls for a conflicting response in the event of a real or monetary shock (for example, when inflation and output evolve in opposite directions).A well known example is the central bank law of the United States, which contains elements of both a real objective (employment) and a nominal one (price stability), in a manner that seems to make both objectives of potentially equal ranking. A conflict could also emerge if the central bank was compelled to operate under more than one nominal anchor, such as maintaining a relatively tight control over an exchange rate while pursuing an inflation or monetary target. Under a floating exchange rate regime, domestic price and Exchange rate stability could call for interest rate adjustments in opposite directions.The need to avoid such potential conflicts has been a factor leading governments in several countries to narrow the objectives of monetary policy towards a single or dominant target in clear priority to others.

Tightly specified objectives can help to insulate the central bank’s policy decisions from political influences at the same time that they concentrate the focus of policymakers and facilitate the external evaluation of their policies. More singular or clearly ranked objectives also reduce the room for uncertainty over what will take priority in the central bank’s decision-making process.Channels of Communication: Determining what information to release when policy settings are changed. One of the biggest challenges faced by central banks is determining what information to release about the policymaking process and the resulting decision about policy settings. What do central banks consider the relevant information to be and how should it be announced? The answer to this question depends, inter alia, on the particular aspect of the policymaking process about which the central bank wants to inform the public and the specific information needs of the people at the receiving end.One of the difficulties has been in calibrating the amount and type of information that should be disclosed.

Collecting and disseminating information is a costly process, both in terms of time and resources. Interpreting the information at the receiving end is also costly. This means that maximizing the effectiveness of communications is a crucial issue for central Banks. A more effective communications policy would do much to reduce information asymmetries between central banks and the public. The announcement of changes in policy settingsA notable change regarding disclosure has been the emphasis on greater transparency at the time of policy decisions. Central banks now provide significantly more information about the decision itself and the reasons behind it.

They are also making efforts to be clearer by issuing better articulated statements and providing accompanying background material. In general, the process by which policy settings are announced is a highly structured mechanism. Not all central banks are officially committed to a definite time frame for making their decisions but, in practice, decisions re made at regular intervals (Graph 3). About 90% of central banks take their decisions on dates that are announced far in advance; more often than not, as much as one year in advance. Changes to policy settings tend to be announced fairly quickly. In about two fifths of cases, the decision is announced within minutes of the conclusion of the meeting. In another quarter, the decision is announced on the same day but a few hours after the meeting, allowing more time to prepare the material to be communicated and providing breathing space for the arrangement of policy implementation.

A few central banks, such as the Bank of Canada and the Central Bank of Iceland, announce their decisions on the next business day. In a few cases, the lag is less easy to ascertain. That is the case in New Zealand, where the policy decision is announced in two different cycles. A first cycle corresponds to the release of the Quarterly Monetary Policy Statement, which provides a detailed discussion of the economy, inflation, the thinking behind monetary policy decision and the outlook.A second cycle comprises four interim interest rate adjustments announced by press statement.

Most central banks manage the announcement process carefully so as to minimise the expression of discordant voices and thus avoid potential confusion among economic agents. Having the decision-making body speak with one voice ensures that the public will not have divergent interpretations of policymakers’ intentions. It also ensures that economic agents will not have access to “insider” information and will therefore be treated equally.Such management of communications holds for both consensus-based and individualistic decision-making structures, although in the latter case committee members are freer to communicate outside the announcement window At around 70% of reporting entities, the policy is to limit comments by senior officials for an average period of eight days prior to the announcement (Graph 5).

At another tenth, there is no formal restriction, but senior officials nevertheless exercise some form of self-censorship and refrain from making comments.There can be some exceptions, however: hints or leaks can sometimes emanate from the senior ranks of the central bank when it is trying to prepare markets ahead of a policy move. Such occurrences are, however, typically less frequent and are well controlled. Things change considerably after the announcement, with two thirds of central banks reporting no restrictions on comments by senior officials. For the remainder of central banks, restrictions do not necessarily reflect a willingness to stifle dissent. Rather, they may be related to practical considerations.For example, central bank that publishes minutes containing the views of individual committee members often restrict public comments by such members until the minutes have been published. Market Operations: Other discretionary functions: Currency distribution and handling.

As the circulation of money increases, it becomes critical for any monetary institute to have a framework for the detection of counterfeits, since I have covered India’s strategy in tackling counterfeits, I have tried below to summarize here how other countries worldwide tackle the menace of counterfeits circulation.United States of America: The three key elements of the US counterfeit deterrence program are an effective currency design, law enforcement and public education program. A new currency design, known as NCD, was introduced in 1996, and began with the $100 denomination. The NCD incorporated additional security features that made verification of the authenticity of USD easier for their users. Preceding the introduction of the NCD for the $100 note, an education program to acquaint the international market with the new currency design was undertaken.Subsequently, the education program targeted domestic issuance for the lower-denomination notes.

A redesigned series, known as the Series 2004 New Color of Money (NCM), was introduced in 2003, and began with the $20 note. The design incorporated enhanced security features and the introduction of subtle background colors, which added complexity to the design. The NCM $50 note was issued in October 2004 and the NCM $10 note was issued in March 2006. As far as law enforcement is concerned, inside the United States, the U.

S.Secret Service has jurisdiction over counterfeiting cases, and it routinely receives information about counterfeit activity from the Federal Reserve, commercial banks, and local law enforcement authorities. Outside of the United States, the U.

S. Secret Service relies on its international law enforcement counterparts, contacts in the banking community, and U. S. diplomatic staff. U.

S. currency received by Federal Reserve Banks is authenticated, and any suspect notes detected are forwarded to the U. S. Secret Service for further investigation. The U.

S.Secret Service also endeavors to encourage, facilitate, and monitor public education in counterfeit detection. International initiatives include training and education for the banking and law enforcement community through its foreign offices, foreign task forces, ICAP, and the International Law Enforcement Academies (ILEAs). As major contribution to the counterfeiting of US currency is from Colombia, U. S. Secret Service assists in implementing a counterfeit detection program in Colombia that employs specially trained canines to detect Colombian-produced counterfeit U.

S. banknotes through the unique aroma present in these counterfeit notes. The U. S. Secret Service maintains two systems to improve statistical reporting of counterfeit note seizures and passing activity: The Counterfeit Contraband System and the USDOLLARS note search website.

The Counterfeit Contraband System facilitates the collection of statistical data on investigations regarding counterfeit currency. In March 1999, the U. S. Secret Service established the USDOLLARS counterfeit note search site on the Internet (www. usdollars. usss. ov) that allows authorized users to access a database containing descriptions of counterfeit notes known to the U.

S. Secret Service. United Kingdom: The wholesale distribution & circulation of Bank of England banknotes is managed under the Note Circulation Scheme (NCS) which promotes the processing and distribution of notes by the commercial sector. The Bank is responsible for providing banknotes that the public can use with confidence that they are genuine. As part of this objective, the Bank monitors the incidence of counterfeit Bank of England banknotes by recording the number of counterfeits removed from circulation.The vast majority of counterfeits are discovered by the banking system when they are separated from genuine banknotes during the sorting process.

They are also taken out of circulation when the public or retailers hand them into the police or banks. The Bank Combats counterfeiting in four ways. First, Bank of England banknotes are designed to be difficult and time consuming to copy by both traditional and computer-based printing methods. The security features that the notes carry, including raised print and feel of the paper, watermarks, holograms and fluorescent inks, provide a series of hurdles for the would-be counterfeiter.

In addition, the designs are very intricate with varying patterns and fine lines. The Bank works closely with De La Rue, the printer of Bank of England banknotes, to ensure that the banknotes issued are of a uniformly high quality. The bank continues to research and develop enhanced security features which may be suitable for further designs. Second, the Bank provides a range of education and training materials about Bank of England banknotes to help cash users check that their banknotes are genuine.Information is available on the Bank’s website, in leaflets and posters, in a short film guide and on a computer-based training package aimed at professional cash handlers. The Bank also conducts public perception surveys about the quality of banknotes in circulation and about the incidence of counterfeits. Third, the Bank works closely with law enforcement agencies investigating counterfeit banknotes.

Staffs in the Bank provide forensic expertise on counterfeiting methods and expert witness statements for court cases. Fourth, the Bank works with the manufacturers of automatic banknote processing machines.The bank provides access to the latest library of counterfeits for testing purposes to ensure that their machines do not give value for a counterfeit note. The Forgery and Counterfeiting Act 1981 is the primary piece of legislation used to bring about successful convictions in the courts. The maximum sentence under this Act is ten years imprisonment.

The Proceeds of Crime Act 2002 is also used by the prosecution authorities to carry out financial investigations on convicted individuals in order to confiscate assets which comprise the proceeds of crime. In addition, they an also apply to the court for a Serious Crime Prevention Order (SCPO) under the Serious Crime Act 2007. A SCPO could, for example, prohibit an individual from buying, owning or using equipment or materials that could be used to manufacture counterfeit currency. Breach of a SCPO is a criminal offence, punishable by a maximum sentence of five years imprisonment. Information regarding the production, distribution or passing of counterfeit notes may be reported to local police or anonymously to crime stoppers- an independent charity working to fight crime.Euro Bank notes Since the introduction of Euro bank notes and coins in 2002, the European Central Bank (ECB) has the exclusive right to authorize the issue of banknotes by the National Central Banks (NCBs) within the euro area.

All decisions on the banknote designs, denominations, etc. are taken by the ECB. The different NCBs of the euro area are then in charge of the practical aspects of producing and putting banknotes into circulation, since they provide commercial banks and the cash-in-transit sector with the necessary quantities.Euro banknote production is organized on a decentralized basis with pooling, in order to increase efficiency by achieving economies of scale. ECB allocates production on an annual basis to the euro-area NCBs, whereby each denomination is produced by a limited number of printing works and each NCB is responsible for the procurement of only one or a few denominations The ECB has adopted a guideline on the setting up of a single Euro system tender procedure (SETP) for procurement of banknotes that will start at the latest in 2012.

The ECB has established a framework for the detection of counterfeits and fitness sorting by credit institutions and other professional cash handlers in 2005. The “Framework” is designed to ensure that credit institutions and other professional cash handlers re-issue euro banknotes to their customers only if these banknotes have been checked, both on their fitness and authenticity.In order to support manufacturers of counterfeit detection devices in their endeavors to develop and enhance their products, the national central banks of the Euro system (NCBs) offer manufacturers of counterfeit detection devices, or their appointed agents, the possibility of testing their devices with a wide range of topical euro counterfeits. The European Central Bank (ECB) publishes information on the tested devices to help banknote users in making a selection from among the available devices.Each device is tested by an NCB according to a common Euro system procedure for testing its ability to correctly detect counterfeit euro banknotes contained in a test deck of euro counterfeits (counterfeit test); and correctly identify genuine euro banknotes contained in a test deck of genuine banknotes (recognition test). The purpose of the tests is not to determine whether a device is user-friendly, safe, durable, easily serviceable etc. The ECB also publishes information on tested counterfeit detection devices to help banknote users choose the one that suits their needs.

While Member States continue to be primarily responsible for ensuring the protection of the euro, trans-national cooperation has been put in place to support anti-counterfeiting efforts. The European Central Bank (ECB) performs a technical analysis of counterfeit euro banknotes of a new type at the Counterfeit Analysis Centre located on the premises of the ECB, stores the technical and statistical data on counterfeit banknotes and coins in a central database, also located at the ECB, and disseminates the relevant technical and statistical information to all those involved in combating counterfeiting.Further responsibilities are shared between the European Commission/European Anti-Fraud Office (OLAF,) the ECB, Europol, Eurojust and Interpol. As a basis, an efficient legal framework has been adopted at European level to increase the general level of protection and harmonize national legislation in this area.National analysis centers for counterfeit banknotes (NAC) and coins (CNAC) work closely with the ECB’s Counterfeit Analysis Centre (CAC) and Commission/OLAF’s European Technical and Scientific Centre (ETSC) to identify, analyze and withdraw counterfeit euro banknotes and coins from circulation, while periodic measures are taken to complete and achieve an appropriate level of harmonization in criminal sanctions. Glossary: Bank Rate: is the minimum rate at which the central bank provides loans to the commercial banks. It is also called Discount rate.

CRR: The percentage of banks deposits which they must keep as cash with RBILAF: A tool used in monetary policy that allows banks to borrow money through repurchase agreements. This arrangement allows banks to respond to liquidity pressures and is used by governments to assure basic stability in the financial markets. Market Stablization Scheme (MSS) securities are essentially short-term government securities, introduced in April 2004, as an instrument of sterilization to partly neutralize the expansionary effects of surges in capital inflows. The amount sterilized through MSS remained immobilized in the Central Government’s account with the Reserve Bank of India.As at end-September 2008, MSS amount stood over Rs. 1.

7 trillion. OMO- Open Market Operations It refers to the purchase or sale by the central bank of any securities in which it deals such as government securities, bankers’ acceptance or foreign exchange. When Central bank offers securities for sale, it intends to contract money supply and credit.

Repo and Reverse Repo: A form of short-term borrowing for dealers in government securities. The dealer sells the government securities to investors, usually on an overnight basis, and buys them back the following day.For the party selling the security (and agreeing to repurchase it in the future) it is a repo; for the party on the other end of the transaction, (buying the security and agreeing to sell in the future) it is a reverse repurchase agreement. SLR: Statutory Liquid Ratio: Bank has to keep portion of total deposits with itself in liquid assets. WPI: An index that measures and tracks the changes in price of goods in the stages before the retail level. Wholesale price indexes (WPIs) report monthly to show the average price changes of goods sold in bulk, and they are a group of the indicators that follow growth in the economy.

Reference:CRR graph: Monetary and Credit Policy Operations, Reserve Bank of India Annual report, dated 27/08/2009. http://www. rbi. org. in/scripts/AnnualReportPublications. aspx? Id=897 Global Financial Crisis and Monetary Policy Response in India* Deepak Mohanty Executive Director of the Reserve Bank of India, at the 3rd Indian Council for Research on International Economic Relations-Internationale Weiterbildung und Entwicklung (ICRIER-InWEnt) Annual Conference, New Delhi 12 November 2009.

Ms Usha Thorat, Deputy Governor of the Reserve Bank of India, at the 56th EXCOM Meeting and FinPower CEO Forum organised by APRACA, Seoul, 29 June 2009. ttp://www. rbi. org. in/scripts/AnnualReportPublications. aspx? Id=897 Source: Ministry of External Affairs – Government of India http://www.

indiainbusiness. nic. in/economy/economic_snapshot.

htm Report of the High Level Group on Systems and Procedures for Currency Distribution: RBI Bulletin. Inflation Targeting Pillars: Transparency and Accountability Charles Freedman and Douglas Laxton WP/09/262 International Monetary Fund. Communication of monetary policy decisions by central banks: what is revealed and why BIS paper 47 Joint Reports on the “Use and Counterfeiting of U. S. currency abroad” – February 2000, March 2003 and September 2006.Currency Design in the United States and Abroad: Counterfeit Deterrence and Visual Accessibility – Marcela M.

Williams and Richard G. Anderson Federal Reserve Bank of St. Louis Review, September/October 2007. Euro Bank Notes – Developments and Future Challenges – ECB Monthly Bulletin – August 2005. Protection of the Euro against Fraud and Counterfeiting” – European Commission (European Anti Fraud Office).

Educational materials on Banknotes extracted from the websites of select Central Banks viz. , Federal Reserve System, Reserve Bank of Australia, European Central Bank and Bank of England. Times of India, The Economic Times.