Online reports that the five-rupee coin will no longer be circulated have fueled rumors regarding the legality regarding the same. Has RBI discontinued the Rs 5 coin from circulation? Why so? Will it remain a legal tender? 

Two types of five-rupee coins 

Two types of five-rupee coins exist in India: brass and thicker metal. The thicker coin has decreased in prevalence, and currently, neither the central government nor the Reserve Bank of India (RBI) issues it, with only brass coins usually found in the market.

Metal melted down and made into blades

The government and the RBI discontinued the five-rupee coins because the metal used in them could be melted down to create four to five blades, which cost over Rs 5.

The RBI has halted the production of the thicker five-rupee coins due to the intrinsic value of the metal in the coin surpassing its monetary worth. The rule states that if the cost of producing currency exceeds its face value, it is removed from circulation. For example, a 5 rupee coin when melted and made into 5 blades and sold for Rs 2 each, resulting in an earning of Rs 10, the intrinsic value of the metal in the coin surpasses its monetary worth. 

Illegal smuggling to Bangladesh 

The RBI discontinued the old five-rupee coin due to illegal smuggling to Bangladesh, where metal coins were melted down and shaped like razor blades. One coin would be used to make 6 blades and subsequently purchased for Rs 2.
Due to the illegal smuggling of five-rupee coins to Bangladesh, there was a drastic reduction of the circulation of the coins in our country.

The government altered the appearance and metal content of five-rupee coins by making them thinner and blending metal with cheaper market elements, preventing smugglers from manufacturing razor blades even if exported to Bangladesh.

RBI works under government guidance to discontinue coins

The RBI is responsible for all monetary policy decisions in India, including money printing and creation. However, the government instructs the RBI to issue currency or coins. Even if a coin or note has been discontinued or is in the process of being issued, the RBI requires central government permission to ban them.