To most of us, Newton was a wacky haired intellectual, who is the culprit behind our expansive Physics text book. Few know how this intellectual freak was an important economic figure in the late 17th century United Kingdom. Apart from discovering gravity, laws of motion, and calculus, Newton, for a brief period, also controlled the supply of money in UK!

Circa 1696, Newton was the warden of the Royal Mint in UK. In those days, one in every four coins was fake, half the coins had bits clipped off them, and the clipped bits were sold for profit.  With the increased supply of (forged) money, the result would have been inflation. Consequently, other countries started refusing English coins due to counterfeit payments. The scientist in Newton could not sit quiet in his station. As Warden of the Mint, he designed and installed new minting machines that were eight times faster than previous ones, and introduced mill-edged coins that were harder to forge or clip. The law in those days also allowed Newton to reward anyone who gave information about forgers, and if an arrested forger informed about two other forgers, he/she was let go of. Simple, yet effective. Not surprisingly, people started talking, and Newton went after William Chaloner – a forger and member of high-society. Chaloner was eventually hanged for his crime and Newton held a steady hand over the money supply and perhaps, on inflation.

Milled edges,courtesy Newton

Counterfeiting, whose beginnings preceded banknotes by centuries, is often called “the second oldest profession”. The advent of banknotes was welcomed by counterfeiters; it was a far more profitable business than reproducing coins or works of art and had a wider population or “market” for their products. Indeed since most banknotes cost little to produce, the successful passing of a forgery is virtually all profit.

Of the 90.26 billion Indian currency notes in circulation in 2015-16, no more than 0.63 million– that is 0.0007%, or seven in every million – were detected as fake, according to RBI data. The value of these fake notes in 2015-16 was Rs 29.64 crore, which is 0.0018% of the Rs 16.41 lakh crore currency in circulation.

Source: Lok Sabha

According to a 2015 joint study by the Indian Statistical Institute and National Investigation Agency, the value of fake currency in circulation at any given time is Rs 400 crore, and 250 in every million notes are fake. The study estimated that fake currency worth Rs 70 crore enters circulation every year, with agencies only being able to intercept one-third of it, the Times of India reported in May 2016. The detection of fake currency is carried out primarily by commercial banks, but such reporting is irregular: Only three banks – Axis, HDFC and ICICI – report about 80% of fake currency detected. (Source: ISI)

Last year we witnessed a major crackdown on counterfeit currency through the note ban. Although it will help the cause immediately, the impact will be short-lived.  The reason is simple: The largest share of the FICN (Fake Indian Currency Notes) that circulates in India is believed to be originating not from nondescript local presses inside the country, but from high-grade, state-owned minting factories in Pakistan.

A mountain of evidence, made public by both domestic and international agencies including the National Investigation Agency (NIA), Financial Action Task Force (FATF), and Interpol have pointed fingers at the Government of Pakistan for creating and sustaining a transnational FICN racket that spans from West Asia to Southeast Asia. The FICN production facilities allegedly run by Pakistani entities are more sophisticated and technically advanced than most of us would like to believe, particularly because they enjoy state patronage. In fact, earlier this year, the Union Home Ministry had informed the Parliament that the increasing accuracy of fake notes had led to a 30 percent dip in FICN recovery over the past three years. With such an impressive degree of operational sophistication, it is highly unlikely that the FICN production system would simply collapse in totality with the entry of a new series of Indian notes.

Over the years, the world has constantly seen innovations in the production technology of notes. The most widely known one is the Optically Variable Device (OVD) – a device which changes its appearance when something external to the note is changed. For example, when the angle of viewing is altered, as the light intensity is changed, or the pressure or temperature is varied (by the fingers). Almost all currencies use a guilloché pattern (a very precise, intricate and repetitive pattern is mechanically engraved into an underlying material) in the background design, asymmetric see-through registration and latent image effects (underlying photosensitive image of Gandhi). It is only through constant innovation that we can disrupt the forging machinery.

The first line of defense against this problem for the government is its citizens. The people are encouraged and advised to check for authenticity of notes, especially the higher denominations, every time they receive money. Thus collective effort is the cornerstone in the government’s strategy to beat the forgers. If you accept a forgery then you are the loser. Although adopting the Newtonian measure of executing forgers is not pragmatic today, mainly because most of them lie across borders,

In addition to the above, there is something far more worrying about the entire FICN production and supply process. Till this date, the RBI, through the Security Printing and Minting Corporation of India Limited (SPMCIL), imports a bulk of the paper used in minting currency notes from European companies like Louisenthal (Germany), De la Rue (United Kingdom), Crane (Sweden,) and Arjo Wiggins (France and Netherlands). So does Pakistan.  Besides, India imports the OVI Intaglio security ink – a distinctive security component of every currency note – from SICPA, a Swiss company that manufactures high-performance security ink; and it is a known fact that SICPA also deals with Pakistan.

If the RBI continues to import paper and security ink for the new notes from the same foreign companies as Pakistan, then the new series will remain as vulnerable to counterfeiting as the older ones. As of now, India does not have a full-capacity infrastructure for indigenously manufacturing all of its currency paper or the ink but an impetus has been provided under the “Make in India” campaign – for producing the new series notes within its own borders. RBI-owned currency paper mill – known as the Bank Note Paper Mill India Private Limited (BNPMIPL) is responsible for printing all the current 2000 rupee notes. A positive sign.

The complexity of the lucrative business of forgery, makes it difficult to have any sure-fire solution to tackle it. We could, however, learn an imperative lesson from Newton. He nudged people to join the fight, which is how every socio-economic issue can be best be resolved. There is hardly any incentive for citizens to report the presence of fake currency changing hands, which makes tracing its point of inception near impossible.

Not unlike hackers who ultimately succeed in crawling into upgraded operating systems by mutating their way through security updates, the sophisticated fake currency web is designed to survive structural disruptions — change of currency notes being one of them. Hence, the Indian government needs to do much more to permanently impair this hugely complex international trade, and in this case, regional cooperation is paramount.

A few centuries ago, a scientist turned into an economist, to save a country from the menace of forgery. Today, we need economists to turn into scientists, who need to bring constant innovations in both- policy and technology, to challenge this social threat. We have come full circle.


-Priyank Daxini




Poskitt, K., (1999), Dead Famous: Isaac Newton and His Apple

Deodhar,Satish Y.,(2012),Day To Day Economics.

Australia’s Plastic Banknotes: Fighting Counterfeit Currency:  Emma L. Prime and David H. Solomon

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