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Que : 88. Explain the main functions of Reserve Bank. |
Answer: i) CURRENCY AUTHORITY - central bank has the sole authority for issue of currency in the country. In India, RBI has the sole right of issuing paper currency notes (except one-rupee notes and coins which are issued by ministry of finance). ii) BANKER TO THE GOVERNMENT - the RBI of India acts as banker, agent, and a financial advisor to the central government and all the state government (except that of jammu and kashmir). as it carries out all banking business of the government. It maintains a current account for keeping their cash balances. it accepts receipt and make payment for the government and carries out exchange, remittance and other banking operations it also gives loans and advances to the government for temporary period. the government borrows money by selling teasury billis to the central bank. As an agent, the central bank also has the responsibility of managing the public debt. As a financial advisor, the central bank advises the government from time-to-time on economic, financial and monetary matters. iii) BANKER'S BANK AND SUPERVISOR - there are a number of commercial bank in a country. there should be some agency to regulate and supervise their proper functioning. being the apex bank, the cental bank acts as the banker to other bank. in this sense, it bears the same relationship with commercial banks as the latter maintains with the general public. As the banker to banks, the central bank functions in three capacities: - custodian of cash reserve - lender of the last resort - clearing houses iv) CONTROLLER OF MONEY SUPPLY AND CREDIT - due to economic fluctuations, the cental bank controls money supply and credit in the best interests of the economy. As RBI has the sole authority in currency issue, it can control credit and supply of money. v) CUSTODIAN OF FOREIGN EXCHANGE RESERVE - the central bank also acts as the custodian of the country's stock of gold and reserve of foreign exchange. This function enables the central bank to exercise a reasonable control on foreign exchange. According to regulations of foreign exchange transactions with the RBI serves two objectives - - it helps the bank in stablizing the external value of money - it helps in pursuing a coordinated policy towars the balance of payments situation of the country |
