Sunday, November 30, 2014

Digitization of Currencies to reduce counterfeiting of cash


Cash is the most predominant used payment instrument across the globe. Consumers choose to use cash more frequently than any other payment instrument, including debit or credit cards. In particular, cash plays a dominant role for small-value transactions, is the leading payment instrument for many types of purchases, and stands as the key alternative when other options are not available. Counterfeiting poses increasing challenges to currencies across the global. With advancement of printing technology counterfeiting has become very easy and cheap. To add to this with the help of state actors in supporting terrorism is also helping counterfeiting currencies.
Counterfeiting is a major economic problem, called “the world’s fastest growing crime wave” ……………………………………………….(Phillips, 2005).
Source RBI Report

Countries like India estimating the loss due to currency counterfeiting is still a big challenge. Some of the available statistics available in  the public domain suggest India seems to be low compare to Canada, UK, Mexico and the Euro Area which is about 40 billion pieces of notes as against 1.7 billion pieces of note in circulation in Canada.


  The counterfeiting of higher denomination is an emerging trend in the share of currency counterfeiting (Rs 500 and Rs1000). It has an effect on the Indian economy also.
In this paper I would like to discuss ways how we can prevent currency counterfeiting using   different methods


Every Currency note need to have a separate DNA / identification. Normally the serial number  identification water marks etc. But are these really very effective. Bank notes are made of heavy paper, almost always from cotton fiber for strength and durability. Some countries including Nigeria, Romania, Mexico, New Zealand, Australia and Singapore use polymers(Plastic) to improve to improve longevity and allow the inclusion of a small transparent window (a few millimeters in size) as a security feature that is difficult to reproduce using common counterfeiting techniques. Watermarks can also be made on polymer currency, for example, Australia has its coat of arms watermarked on all its plastic bills. Printed with white ink, simulated watermarks have a different reflectance than the base paper and can be seen at an angle. Because the ink is white, it cannot be photocopied or scanned. We need to evolve new ways to help currencies identify using electronic or digitize ways.
Source : Wikipedia  
1. Use of  Embedded RFID Tags : RFID tags can be embedded in the currency and have security tokens which can be authenticated by a central government system. Banks and Currency Exchangers can be provided with validation devices which can be connected with the central system to validate. Since each currency has its own DNA it would be difficult for counterfeiting. The token number can be a combination of serialnumber + date of printing (which can be only known to the central system) + denomination + some secret token. This can be done for high denomination  currencies like 500 and 1000.  
Sample Implementation
 2. Using of QR Code  or Hologram embedded in the note: This will bearing a unique encrypted "signature" whose validity can be checked electronically and signature can be verified using central system
Sample Implementation

The QR code can be a combination of same logic and can be verified using secured readers provided by government agencies / private agencies and certificated provided by the central government of RBI
It can also be a combination of both. With identification being a key for the currency it will also help the government to track the currency flow and also help in reducing black money. QR Scanner can be implemented in Mobile POS and Smart Phones to help citizen validate the currency themselves with simple mobile apps provided by RBI to validate the currency.   

. Using Digital E-Currency : Using digital currency like Bitcoin. Rupee should also have a digitize version issued by the RBI. This will save the country from printing the currency . Provide smartcard based aadhar cards which will hold the currency like rupee wallet. Making the wallet acceptable at most of the retail reduce the use of cash will also help in reducing counterfeiting. It will also help preventing fraud and misuse of Government Scheme money since the aadhar will be connected to the bank a/c. Also wallet can be implemented in the mobile in place of the aadhar card since mobile penetration is very high in the country. With Modi’s plan of Financial Inclusion Bank A/c for every citizen will help in implementing the digitization more effectively.  Digital India will also be a key driver to bring in digitization of the Indian Rupee. Using signature to transfer fund between wallet for B2C and C2C transfer will help in secured and validated transaction management. This will also help in reducing black money in the market and help us build a robust and digitized economy    

Implementing Digitization  


The Central Hub will help in Validating the Currency Token. Merchants , Banks and Citizen will use the services of the regional verification Agency to help verify the currency. The verification needs to be realtime system hence should provide only read only access. The e-currency can be implemented using the same platform for validation. Government can implement verification services using private and public partnership. The same can be used for Address and KYC verification similarly it can be also implemented on the Aadhar Verification Services. The same infrastructure can be used for Currency Token Generation using Hardware Security Devices
Some of major challenges to implement digitization of currency is the
1. Scale of economy of the currency in India
2. The acceptance of the citizen of India for usage of currency 

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