Abstract—In India, currency forms a significant part of money supply. Money supply is generally viewed in two senses. Money supply in the conventional sense includes notes and coins in circulation (nominally claims against the central bank and / or the government of the country) plus those deposits with banks which are repayable on demand. This is also referred to as the narrow definition of money supply and is widely known as M 1 . When time deposits with banks are added to M 1, the definition of money supply becomes broader and is in India known as M 3. However, this research study focuses only on the aspect of banknotes and coins, which is a part of M 1 , but plays a vital role in currency management. Index Terms—Coinage, currency, dinamination, circulation. I. INTRODUCTION The study of coins and related objects is called Numismatics and that of banknotes is called Notaphily. A coin is a piece of metal or other material bearing distinctive marking to authorize its use as money and a banknote is a promissory bill. At the infancy of human civilization, people had to produce or procure their necessities by dint of their own labour. In course of time, the practice of barter came into vogue[1]. In the primitive barter system there was the problem of finding “two persons whose dispossessable possessions mutually suited each others’ wants. There may be many persons wanting and possessing those things wanted, but to allow an act of barter, there must be a double co-incidence, which will rarely happen” [2]. In convenient standard, different metals were used in the field. Thus, the lump of gold, silver, copper and exchange from the earliest times in India. And in course of the issuing authorities. The evolution of money has passed through the following stages depending upon the progress of human civilization at different times and places. They are commodity money (system of barter), metallic money (evolution of coinage), paper money (evolution of banknotes), and credit money (cheques), near money (bills of exchange, bonds etc.), plastic money (payments system through cards) and polymer banknotes (plastic currency). II. REVIEW STAGE Lakshmi (2009) [3] has written an article on the availability of the country’s first bi-metal coin in the denomination of RS.10 and has stated that the aim of RBI is to increase the shelf life of RS.10 that of notes made of cotton rag paper lasting only upto 10 years while that of Manuscript received December 7, 2012; revised February 3, 2013. Srinivasan Chinnammai is with Department of Economics, University of Madras, Chepauk, Chennai 600 005, Tamil Nadu, India (e-mail: pragathauomr@gmail.com). coins would be up to 20 years. The same author (2009) [4] has spoken of the new 5- rupee coin launched in Chennai city, made of nickel and brass. The introduction of this new coin was in light of complaints about difficulties in differentiating between the coins in the denomination of five rupees and 50 paise. The Hindu, (2011) [5] has come out with the article of RBI’s meeting with press persons and the former’s announcement of legally invalidating the circulation of coins in the denomination of 25 paise and below from June 30, 2011. There was no direct answer from the RBI personnel when asked whether 50 paise coins will also be dealt the same way in due course of time. However, it was confirmed that RS.10 coins are in short supply. This shows the gradual eradication of smaller denominations from circulation. This review has helped the researcher in understanding the difficulties faced by the poor due to such gradual phasing out of smaller denominations from circulation, while framing the objective and hypothesis. III. ECONOMIC THEORIES The research study has its foundation on certain economic theories of famous economists and concepts based on these theories. The following are the economic theories that have been applied during primary data collection and analyses. Coase Theorem: Though not actually a theorem in the strictest sense of the term, a view put forth by Ronald Coase is that externalities or economic inefficiencies will under certain conditions be corrected by bargaining between the affected parties. Such an economic inefficiency was actually undergone by Government of India and RBI when it had to come out with a new type of RS.5 coin with shining brass finish since the one minted earlier resembled 50 paise coin and caused hardship to the public. Post hoc fallacy: From the Latin post hoc, ergo propter hoc, which translates as “after this, therefore because of this”, this concept means that if an event B follows an event A, it results in B being caused by A. In order to avoid such fallacy, this opinion survey is highly important. To quote an example, RS.10 coins with ferro copper combination were circulated by the Government of India through RBI. However, it was felt that for the sake of metallic content it was hoarded by the people, putting Gresham’s law into action (soiled RS.10 banknotes were in circulation but not RS.10 coins – “bad money driving away good money out of circulation”). IV. METHODOLOGY This section explains the methodology employed to analyze the factors in determining the respondent’s choice of new currency. Let Y i take two values, either 1 or 0. That A Study on Currency and Coinage Circulation in India Srinivasan Chinnammai International Journal of Trade, Economics and Finance, Vol. 4, No. 1, February 2013 43 DOI: 10.7763/IJTEF.2013.V4.258