Why India needs a coin replacement policy

In today’s Finshots, we look at why India still mints the ₹1 coin at a loss, and how smarter minting could fix it.
But before we begin, if you’re someone who loves to keep tabs on what’s happening in the world of business and finance, then hit subscribe if you haven’t already. If you’re already a subscriber or you’re reading this on the app, you can just go ahead and read the story.
The Story
When UPI took over India’s payment culture, it didn’t just change how people paid. It also quietly pushed physical currency — especially coins, into the shadows.
Think about it. In just eight years, UPI transactions shot up from 64 lakh in March 2017 to a jaw-dropping 1,830 crore by March 2025. And as phones began to buzz with payments, India’s currency mints began to fall silent.
Just look at the numbers. Between 2017 and 2024*, coin production by the Securities Printing and Minting Corporation of India (SPMCIL), the sole operator of India’s currency printing and minting, fell by 88%, down to just 120 crore coins.
Currency notes, on the other hand, barely moved up by only about 10% in the same span.
For the government, this shift is actually a win because minting coins isn’t cheap. They’re made of metal, and when you look at cost as a percentage of their value (like the cost of producing a ₹5 coin versus its face value of ₹5), coins are far more expensive to produce than notes.
But here’s where things get tricky. Despite the fall in coin use, one stubborn little denomination refuses to fade away. We’re talking about the humble ₹1 coin.
Back in 2018, an RTI filed by India Today revealed the true cost of minting. The ₹1 coin cost ₹1.11 to produce. In other words, the government was losing money on every single one. And it wasn’t just the ₹1 coin skating on thin ice. The ₹2 coin cost ₹1.28 to make, and the ₹5 coin, ₹3.58. Even those were on wafer-thin margins.
And remember, this was back in 2018. Seven years later, it’s safe to assume those costs are even higher today.
Now, with UPI booming, you’d think the government would simply cut back. After all, SPMCIL’s minting capacity is running at just 15%. But here’s the surprise. The ₹1 coin still dominates circulation. Nearly 40% of all coins floating in the economy today are of this denomination.
So despite the economics being far from sustainable, the ₹1 coin clings to life. And that leaves us with the obvious question — why does the government keep minting it?
It’s simple really. The ₹1 coin may be a loss-making venture, but it’s still indispensable. Rural communities, the urban poor, street vendors, small businesses, even public transport — they all rely on it. Besides, many tiny transactions can’t be digitised or handled with bigger notes. And coins, after all, aren’t just money; they’re symbols of trust and certainty in a country where cash is still king. For someone unaccustomed to rounding off digital bills, a ₹1 coin makes all the difference.
That’s why the government tolerates the loss. In minting terms, it’s called a “production loss” — small enough to be written off because the coin plays a vital role in keeping the system running smoothly.
But here’s the thought. Does it have to stay this way? What if India could still find a way to reduce these losses?
Because this isn’t just India’s problem. Almost every country has wrestled with the economics of its lowest-value coins. Take the US, for instance. It has been minting pennies for over 230 years, but each 1 cent coin costs nearly 4 cents to produce. That’s why they’ve been mulling a phase-out. Canada took the plunge in 2012. Australia ditched its pennies way back in 1992.
And when countries drop their smallest coins, they usually adopt “rounding rules”. Malaysia, for instance, rounded cash payments upwards or downwards to the nearest 5 sen (smallest unit of the ringgit). So, a bill of RM82.08 simply became RM82.10. Old coins remained legal tender, but no new ones were churned out.
Now, sure, this may not be an apples-to-apples comparison, since the sen is more like the Indian equivalent of paise. But the difference is that sen is still used for paying bills in Malaysia, while paise is no longer in the picture here.
India, however, doesn’t have such a coin replacement policy. The Coinage Act of 1906, gave the Centre power to withdraw coins but never said when. The 2011 version doesn’t spell it out either. Compare that to the US: when silver became too pricey in the 1960s, its Coinage Act clearly set specifications to phase silver out.
But replicating similar rounding rules or coin replacement policies in India would be far more complicated. In countries like Canada and Australia, rounding applies only to cash payments and barely matters because digital transactions dominate and purchases are usually of higher value.
In contrast, India’s story is very different. A huge section of the population still depends on cash for everyday needs. Imagine the government suddenly saying it’ll stop producing small coins and instead round off bills. That would spark chaos.
Because here, exact amounts matter. Street vendors, small shops, daily wage earners, and informal markets rely on every rupee. Rounding off could unfairly hit lower-income households that deal in small sums. And without widespread digital access or literacy, replacing exact change with rounded payments could fuel confusion, mistrust, and losses for those who can least afford it.
So if scrapping coins and enforcing round-offs won’t work here, what’s the alternative, you ask?
See, if India decides to keep minting the ₹1 coin — whether because it’s the lowest denomination or simply because people still need it — there’s one practical option: cut production costs and make minting cheaper.
Right now, the ₹1 coin is made of ferritic stainless steel with iron and chromium, and each weighs 3.76 grams. To put that in perspective, it’s about 50% heavier than the US penny (2.5 grams) and nearly 60% heavier than the euro one cent coin (2.3 grams). Heavier coins, naturally, mean higher costs.
Other countries have experimented with alternatives. The US, for instance, tweaked its penny in 1982, moving from a mostly copper coin to one that was copper-plated, with 95% zinc underneath. Over time, the copper content dropped further to just 2.5%. That kept production affordable for decades, though even now the US is wondering if 2025 should be the penny’s final year.
Europe went another route. In 2017, eurozone mints decided to standardise how they make the smallest coins. They agreed to use the same kind of metal, allow small variations in thickness and diameter, and make the designs on the coins a little less deep. These tweaks made the coins cheaper and easier to produce in bulk.
What they didn’t change was the coin’s size, weight, or how it worked in vending machines. So the public barely noticed a thing, while the mints quietly saved money in the background.
India could do something similar. By optimising materials and streamlining processes, the government could bring down minting costs without disrupting size, weight, or the trust people place in their coins. Because every time a coin looks or feels different, public suspicion runs high.
This way, the humble ₹1 coin stays in circulation, the government doesn’t bleed money with each mint, and production gets standardised without tampering with what people already know and trust.
Because even if it costs a little more to make, the ₹1 coin still holds ground nationwide and we’re not ready to part with it just yet.
What do you think?
Until then…
*We’ve used FY24 data, since the latest Annual Report hasn’t been published yet
Don't forget to share this story on WhatsApp, LinkedIn, and X.
A message to all the breadwinners
You work hard; you provide and make sacrifices so your family can live comfortably. But imagine when you're not around. Would your family be okay financially? That’s the peace of mind term insurance brings. If you want to learn more, book a FREE consultation with a Ditto advisor today.