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The Reserve Bank of India is India’s central bank (RBI). The RBI was established by the RBI Act 1934, which went into force on April 1, 1935. The RBI’s primary functions include acting as a banker’s bank, a custodian of foreign reserves, a credit controller, and overseeing the printing and circulation of currency notes. The Reserve Bank of India (RBI) seems to be the country’s central bank. The Reserve Bank of India is a government-owned corporation. It is responsible for printing currency notes and regulating India’s economic money supply.
Functions of Reserve Bank
Notes: The Reserve Bank has only a monopoly on printing currency notes within the country. Except for one rupee note, it has complete authority to issue currency notes of all denominations (issued by the Ministry of Finance).
The Government’s Banker: The Reserve Bank’s second major responsibility is to perform as a banker, agent, or advisor to the Indian government and the states. It conducts all of the State and Central Government’s financial tasks and provides useful economic and financial policy recommendations to the government. It is also in charge of the government’s public debt.
The Banker’s Bank: The Reserve Bank provides the other commercial banks with the same tasks that the other banks conduct for their clients. The Reserve Bank of India provides money to those countries’ commercial banks.
The Credit Controller: The Reserve Bank of India oversees credit generated by commercial banks. The RBI employs two ways to manage the additional money flow in the economy. These are quantitative and qualitative ways of controlling and regulating the country’s credit flow. When the RBI determines that perhaps the economy possesses sufficient money supply and could lead to inflation, it tightens the money supply through its monetary policy.
Foreign Reserves Custodian: The Reserve Bank involves buying and selling foreign currencies and preserves the country’s foreign currency funds to keep foreign exchange rates constant. Whenever the supply of foreign currency in the economy falls, the RBI sells it in the foreign exchange market and inversely. India now maintains a Foreign Exchange Reserve of approximately US$ 487 billion.
Additional Functions: The Reserve Bank has a variety of other developmental responsibilities. These responsibilities involve clearinghouse functions such as organising credit for agriculture (which has been transmitted to NABARD), trying to collect as well as publicise economic data, buying and selling government securities (gilt edge, treasury bills, etc.) & trade bills, lending to the government, sale, and purchase of important commodities, and so on.
RBI’s Role as a Banker to the Government
The RBI serves as a banker to the government. It conducts all of the government’s banking activities, including the receipt or payment of the money just on the government’s behalf and the government’s exchanges, remittances, and other financial processes. The governments keep their cash reserves in the RBI’s bank account.
The RBI, like that of the banker to the government, provides the government with short-term credit to cover any gaps in revenues over expenditures. It also offers state governments short-term loans in the form of means and methods of advances. However, certain state governments use overdrafts for limited periods. The RBI has been unable to put an end to this behaviour. The RBI, like that of the government’s banker, is also responsible for handling the public’s (i.e., government’s) debt. The RBI is responsible for managing all new government loan issuance, servicing ongoing public debt, and maintaining the government securities market. The last role is critical to the government’s borrowing plan from the general public (including banks), which became increasingly important for mobilising money for public-sector project funding.
Conclusion
The Reserve Bank has only a monopoly on printing currency notes in-country. The Reserve Bank’s Central Office had first been founded in Kolkata, although in 1937, it was completely relocated to Mumbai. The Governor sits at the Central Office, where policies were made. The government of India had owned the Reserve Bank of India until 1949 when it was nationalised. A central board of directors oversees the Reserve Bank’s functioning. The Reserve Bank of India Act allows the government of India to select the board. Now you have all the necessary information regarding RBI as a banker to the government.
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