Reserve Bank of India
RBI was established on 1st April 1935, with capital of 5 crore, on the recommendations of Hilton Young Committee, under RBI Act, 1934.
- It was nationalised on 1st January 1949.
- It got the membership of Bank of International Settlement (BIS) in 1996.
- RBI is managed by a group of 21 members, which comprises -
- 1 Governor
- 4 Deputy Governor
- 2 Officials from Ministry of Finance
- 10 Directors nominated by Government representing different sectors of Economy
- 4 Directors of Local Boards situated in 4 Metropolitan Cities.
- First Governor – Sir Osborne Smith
- First Indian Governor – C.D. Deshmukh (1946 – 1948)
- Present Governor – Shaktikanta Das
- Accounting Year of RBI – At present 2021-22 (Starting from April 1)
- Every year it represented its report – ‘The Annual Report on Currency and Finance’
Functions of RBI
As the Central Bank of the country, RBI performs the following functions:
- Issue currency notes
- Banker’s Bank and lender of the last resort
- Government’s Banker, Advisor and Agent
- Regulator of Monetary System
- Regulator of Banking System
- Central Bank of the Country
- Manager of foreign currency reserve
- Debt manager to the Government
- Regulator of the exchange rate system
- Publication of the Monetary data
- Measurement of Money Supply
- Credit control and Monetary policy, etc.
Issuing Currency Notes
It was started in 1938, RBI issue currency notes starting with Rupee 2 to higher value.
- While the 1 rupee note and all the coins are issued in the name of Government of India under direction of RBI.
- Since 1957, for issuing Currency notes RBI has been adopting ‘Minimum Reserve System’ or ‘Minimum Foreign Reserve System’, under which a minimum reserve equivalent to 200 crores is always maintained in 2 designated forms:
- 115 crores in form of Gold and Gold coins
- 85 crores in foreign currencies and securities.
Measurement of Money Supply
What is money?
‘Money is what money does.’
The main functions of Money are:
- Medium of Exchange
- Measurement of Value
- Storage of Value
Liquidity – Quantity of Money available at particular
time. (Cash/Money in any form)
Types of Money
- Legal Money of Fiat Money
- Issued by Government or RBI
- Credit Money
- Issued by Banks
- E.g., Draft, Cheques etc
- Near Money
- Any type of security that could be converted into money
- E.g., Bonds and Debentures
- Hard Currency
- Whose Demand is high but Supply is low
- E.g., Dollar
- Soft Currency
- Whose Demand is low and Supply is High
- E.g., Rupee
- Cheap Money
- Available at low rate of Interest
- Dear Money
- Available at high rate of interest
- Standard Currency
- Whose intrinsic value and printed value is same.
- E.g., Coins
- Token Currency
- Intrinsic value is less than the printed value.
- Eg Currency notes
- Hot Money
- It moves rapidly from one place to another according to the profit.
- E.g. Investment made by foreign investors in share market.
- Plastic Money
- Debit Cards, Credit Cards, ATMs
- Virtual Currency
- Digital currency created virtually.
- E.g., Bit coins
(Credit = Loan)
Major function of RBI is to
control the flow of credit among the banks.
There are several measures that are taken by the RBI to control flow of credit.
Credit Control by RBI
Quantitative Credit Control
Qualitative Credit Control
Reverse Repo Rate
- LAF – Liquidity Adjustment Facility
- OMO – Open Market Operation
- CRR – Cash Reserve Ratio
- SLR – Statuary Liquidity Ratio
Quantitative Credit Control