Investing in Old Banknotes

Are old banknotes a good investment?

As a banknote collector, I often field queries from friends considering collectible notes as an investment. I personally know a number of collectors who invest some of their surplus in old banknotes, expecting to cash in at a later date. Many of my dealer friends also report that older notes are becoming an investment due to their rarity, and the growing number of collectors. While I advise people against buying antiquities purely as an investment, it is true that these items tend to hold on to their value, and also appreciate in value over the long term ( >5 years).

Why are old banknotes Expensive?
Rarity and Demand. Paper is fragile and has no intrinsic value. As a result, banknotes deteriorate much faster compared to coins. Unlike the gold and silver coins used in the past, paper also has no intrinsic value – so people either spent this cash or deposited it in banks. As a result, few such notes remain – making them rare. Thus, while a silver rupee from the 1940s can be had for Rs 500-600, a one-rupee banknote from the same period can fetch up to ten times the price! Likewise, one rupee banknotes from 1910s can go for over a lakh – 100X the price of a silver rupee from the same period!

Second, as India’s economy grows, Indian consumers (and collectors) have greater spending power – pushing up prices of Indian collectibles. For instance, market values of Chinese collectibles, including old currency, have shot up in the past 20-years, as newly rich consumers started to snap up pieces of history, pushing up prices. It is natural that Indian collectors will have a greater interest in Indian history and related items – things that they are familiar with.

A point to remember is that not everything that is old is valuable – and not all old notes have the same value. A good rule of thumb is that what was common a decade back will remain common a decade down the line – the same applies to rarities. Items that fetched a premium in the past are more likely to fetch a premium in the future as well. In the Indian context, some banknotes prized by collectors include the first issues (printed in 1950), the Gulf issue notes, and almost all the pre-1947 banknotes, which are very hard to find.