Money and Banking (part – II)

The Reserve Bank of India was established on April 1, 1935, under the Reserve Bank of India Act of 1934. The central office (headquarter) of the RBI was initially established in Kolkata but was permanently shifted to Mumbai in 1937. Though originally privately owned, since nationalization in 1949, the Reserve Bank is fully owned by the Government of India.

Some of the basic functions of the RBI are:

1. Issuer of notes : The RBI is the only institution which has the control over issuing of currency notes (except the one rupee note, which is issued by the finance ministry).

2. Banker to the Government: The RBI performs banking functions for the Central and State Governments. It advises the government on monetary policy issues and also manages the government's public debt. Currently, the RBI acts as banker to all the State Governments (including UTs of Puducherry and Jammu & Kashmir), except Sikkim. For Sikkim, RBI has limited agreement for management of its public debt.

3. Banker's bank: The Central Bank is also known as the banker's bank because it performs functions similar to what commercial banks do for their customers.

4. Credit regulation: The RBI regulates the flow of money in the country's financial system. RBI is responsible for maintaining price stability by controlling inflation. It controls inflation in the economy by controlling the credit creation and takes necessary policy decisions from time to time to address systemic concerns.

5. Foreign exchange reserves: The RBI maintains the foreign exchange reserves in India. The Central Bank buys and sells foreign currencies to keep the foreign exchange rates stable. It takes necessary steps as and when required.

6. Role in development of the country: The RBI performs various functions and takes necessary decisions to support developmental agenda of the government.

The Reserve Bank of India was established on April 1, 1935, under the Reserve Bank of India Act of 1934. The central office (headquarter) of the RBI was initially established in Kolkata but was permanently shifted to Mumbai in 1937. Though originally privately owned, since nationalization in 1949, the Reserve Bank is fully owned by the Government of India.

Some of the basic functions of the RBI are:

1. Issuer of notes : The RBI is the only institution which has the control over issuing of currency notes (except the one rupee note, which is issued by the finance ministry).

2. Banker to the Government: The RBI performs banking functions for the Central and State Governments. It advises the government on monetary policy issues and also manages the government's public debt. Currently, the RBI acts as banker to all the State Governments (including UTs of Puducherry and Jammu & Kashmir), except Sikkim. For Sikkim, RBI has limited agreement for management of its public debt.

3. Banker's bank: The Central Bank is also known as the banker's bank because it performs functions similar to what commercial banks do for their customers.

4. Credit regulation: The RBI regulates the flow of money in the country's financial system. RBI is responsible for maintaining price stability by controlling inflation. It controls inflation in the economy by controlling the credit creation and takes necessary policy decisions from time to time to address systemic concerns.

5. Foreign exchange reserves: The RBI maintains the foreign exchange reserves in India. The Central Bank buys and sells foreign currencies to keep the foreign exchange rates stable. It takes necessary steps as and when required.

6. Role in development of the country: The RBI performs various functions and takes necessary decisions to support developmental agenda of the government.

The Reserve Bank of India was established on April 1, 1935, under the Reserve Bank of India Act of 1934. The central office (headquarter) of the RBI was initially established in Kolkata but was permanently shifted to Mumbai in 1937. Though originally privately owned, since nationalization in 1949, the Reserve Bank is fully owned by the Government of India.

Some of the basic functions of the RBI are:

1. Issuer of notes : The RBI is the only institution which has the control over issuing of currency notes (except the one rupee note, which is issued by the finance ministry).

2. Banker to the Government: The RBI performs banking functions for the Central and State Governments. It advises the government on monetary policy issues and also manages the government's public debt. Currently, the RBI acts as banker to all the State Governments (including UTs of Puducherry and Jammu & Kashmir), except Sikkim. For Sikkim, RBI has limited agreement for management of its public debt.

3. Banker's bank: The Central Bank is also known as the banker's bank because it performs functions similar to what commercial banks do for their customers.

4. Credit regulation: The RBI regulates the flow of money in the country's financial system. RBI is responsible for maintaining price stability by controlling inflation. It controls inflation in the economy by controlling the credit creation and takes necessary policy decisions from time to time to address systemic concerns.

5. Foreign exchange reserves: The RBI maintains the foreign exchange reserves in India. The Central Bank buys and sells foreign currencies to keep the foreign exchange rates stable. It takes necessary steps as and when required.

6. Role in development of the country: The RBI performs various functions and takes necessary decisions to support developmental agenda of the government.

The Reserve Bank of India was established on April 1, 1935, under the Reserve Bank of India Act of 1934. The central office (headquarter) of the RBI was initially established in Kolkata but was permanently shifted to Mumbai in 1937. Though originally privately owned, since nationalization in 1949, the Reserve Bank is fully owned by the Government of India.

Some of the basic functions of the RBI are:

1. Issuer of notes : The RBI is the only institution which has the control over issuing of currency notes (except the one rupee note, which is issued by the finance ministry).

2. Banker to the Government: The RBI performs banking functions for the Central and State Governments. It advises the government on monetary policy issues and also manages the government's public debt. Currently, the RBI acts as banker to all the State Governments (including UTs of Puducherry and Jammu & Kashmir), except Sikkim. For Sikkim, RBI has limited agreement for management of its public debt.

3. Banker's bank: The Central Bank is also known as the banker's bank because it performs functions similar to what commercial banks do for their customers.

4. Credit regulation: The RBI regulates the flow of money in the country's financial system. RBI is responsible for maintaining price stability by controlling inflation. It controls inflation in the economy by controlling the credit creation and takes necessary policy decisions from time to time to address systemic concerns.

5. Foreign exchange reserves: The RBI maintains the foreign exchange reserves in India. The Central Bank buys and sells foreign currencies to keep the foreign exchange rates stable. It takes necessary steps as and when required.

6. Role in development of the country: The RBI performs various functions and takes necessary decisions to support developmental agenda of the government.

The Reserve Bank of India was established on April 1, 1935, under the Reserve Bank of India Act of 1934. The central office (headquarter) of the RBI was initially established in Kolkata but was permanently shifted to Mumbai in 1937. Though originally privately owned, since nationalization in 1949, the Reserve Bank is fully owned by the Government of India.

Some of the basic functions of the RBI are:

1. Issuer of notes : The RBI is the only institution which has the control over issuing of currency notes (except the one rupee note, which is issued by the finance ministry).

2. Banker to the Government: The RBI performs banking functions for the Central and State Governments. It advises the government on monetary policy issues and also manages the government's public debt. Currently, the RBI acts as banker to all the State Governments (including UTs of Puducherry and Jammu & Kashmir), except Sikkim. For Sikkim, RBI has limited agreement for management of its public debt.

3. Banker's bank: The Central Bank is also known as the banker's bank because it performs functions similar to what commercial banks do for their customers.

4. Credit regulation: The RBI regulates the flow of money in the country's financial system. RBI is responsible for maintaining price stability by controlling inflation. It controls inflation in the economy by controlling the credit creation and takes necessary policy decisions from time to time to address systemic concerns.

5. Foreign exchange reserves: The RBI maintains the foreign exchange reserves in India. The Central Bank buys and sells foreign currencies to keep the foreign exchange rates stable. It takes necessary steps as and when required.

6. Role in development of the country: The RBI performs various functions and takes necessary decisions to support developmental agenda of the government.

As a banker to banks, the Reserve Bank of India acts as the 'lender of the last resort' (LoLR). It refers to the rescue of a bank that is solvent but faces temporary liquidity problems by supplying it with much needed liquidity when no one else is willing to extend credit to that bank. Thus under LoLR, the RBI provides emergency money or liquidity to the bank when the latter faces financial stringency. In other words, LoLR is a financial safety net provided by the RBI to commercial banks. Hence, option (b) is the correct answer.

The Reserve Bank of India does not issue one rupee notes and coins, while currency notes of other denominations are issued by the RBI. One rupee note was issued by the Government of India bearing the signature of the Finance Secretary while other notes bear the signature of RBI e) 2012 Governor. It is noteworthy that Government of India continued to issue currency notes till the Reserve Bank of India established on 1" April, 1935. When the one rupee note was reintroduced as a war time measure in August 1940, it was issued by Government of India with the status of a coin. Government of India continued to issue one rupee note till 1994.

The Reserve Bank of India does not issue one rupee notes and coins, while currency notes of other denominations are issued by the RBI. One rupee note was issued by the Government of India bearing the signature of the Finance Secretary while other notes bear the signature of RBI e) 2012 Governor. It is noteworthy that Government of India continued to issue currency notes till the Reserve Bank of India established on 1" April, 1935. When the one rupee note was reintroduced as a war time measure in August 1940, it was issued by Government of India with the status of a coin. Government of India continued to issue one rupee note till 1994.

Credit creation is the function of the commercial banks and RBI controls the credit creation by its monetary policy. Rest are the functions of the Reserve Bank of India .

The main function of the RBI are - (i) Issuer of currency notes (ii) Banker to banks (iii) Banker to the government (iv) Controller of credit (v) Exchange management and control. Regulation of foreign trade is not the function of the Reserve Bank of India. Foreign Trade is regulated by Ministry of Commerce and Industry.