What Is The Reserve Bank Of India?
The Reserve Bank of India is alternatively known as the ‘central bank of India’. It is the main banking authority in the country that regulates the issuance of currency, foreign exchange, and banking sector and ensures the monetary stability of the country.
The Reserve Bank of India came into force through the Reserve Bank of India Act, of 1934, and started operating in 1935. The Bank was a private entity, implying that the Bank was divided into shares held by private persons.
However, post-independence, the government of India decided to nationalise the Bank. In 1949, the ownership of the Bank was dissolved and transferred completely to the Ministry of Finance, under the Government of India. Ever Since, RBI has been the apex bank in the country, which does not engage in banking activities in the common sense.
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What Is The Role Of The Reserve Bank Of India?
The Reserve Bank of India plays an essential role in maintaining the economic stability of the country. It deals with foreign exchanges, issuance of currency and many more things to maintain a balance in the economy. The repo rate and other related economic rates are also decided by the Bank. It plays a major role in:
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Regulating the issue of banknotes,
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Maintaining reserves to ensure monetary stability,
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Operating the credit and currency system of the country,
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Ensuring growth while dealing with price stability.
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What Are The Functions Of The Reserve Bank Of India?
The Reserve Bank of India serves multiple functions in the country. Let us learn about them in detail!
The RBI issues notes in the economy to maintain a cash flow. It is the sole issuer of currency in the form of coins and notes, however, it does not mint or issue the one rupee coins. The issuance of one rupee coin is held solely by the government of India. RBI is only responsible for circulating them.
The RBI is also a banker to the government as it engages in multiple functions of a regular bank with the government. It provides credit to the Indian government without interest for a short term, buys and sells government securities, advises the government about financial policies, keeps the deposits of the govt and also maintains the accounts and treasuries.
RBI is also popularly known as the banker to banks. RBI maintains reserves of Scheduled Commercial Banks like SBI, HDFC, etc. with them. It provides monetary assistance to these banks against mortgaged securities and rediscounts bills of exchange.
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Usually, in times of financial need, banks lend and borrow from each other and manage. However, in events where no other option is left and the situation is bad, the Banks approach RBI which lends to them and acts as a lender of last resort.
- Custodian and Manager of Foreign Exchange Reserves
To maintain and stabilise the value of Indian currency, the RBI maintains the reserves of foreign currencies to maintain the exchange rate. This function of the RBI also helps promote international trade.
- Controller of Credit or Money Supply
RBI controls the inflation and deflation in the economy by changing its reserve rates. It regulates the amount of money in circulation in the economy.
- Controller of Financial Fraud
RBI issues regulations and rules from time to time to prevent financial fraud in the country. It formulates policies and plans to curb these financial frauds and prosecute them by law.
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Conclusion
The Reserve Bank of India is the spine of the Indian economy due to its vast and diverse functions. The Bank plays an important role in the growth and economic stability of the country. To a huge extent, the Bank also majorly impacts international trade in the country.
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