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Role of Currency Chests in Modi’s Demonetization drive

Have you ever seen a godown full of currency notes bundled neatly in iron boxes ? Have you ever wondered why your bank insists on informing them in advance if you are depositing or withdrawing large amounts of cash ? The answer lies in managing cash reserves at branch and at currency chest.

Let us start with a branch. Any banking branch in India does not hold cash above a threshold level. If it is an urban branch, it may keep a maximum of Rs. 10.0 Lakhs in cash on any given day. If somebody deposits large amounts of cash above this threshold level then banks deposit them in currency chest by the end of day end.

What is Currency Chest:

Currency Chest is a repository of cash usually maintained by designated/appointed branches in a particular city. All the branches of a particular bank or other banks in that region transacts with designated currency chest.

Branches keep the money above their threshold level at currency chest and also withdraws when they need excess cash. Currency chest in fact is used as a distribution platform of notes and coins by RBI and banks. Deposit into chest leads to credit of the commercial bank’s account and withdrawal a debit.

Functions of Currency Chests :

  • Indent, Supply and Issue of notes and coins to banks
  • Receipt of notes and coins from banks
  • Collection of soiled/torn notes from banks and remittance of the same to RBI
  • Collection of withdrawn notes and coins from banks and remittance to the Mints
  • Meeting Cash requirement of banks in concerned area
  • Managing cash reserves (collected under cash reserve ratio) of banks

There are around more than 4000 currency chests in India. In last week demonetization drive, the currency chests were the backend repositories which absorbed old 500 and 1000 notes and supplied new 2000 currency notes.