Question

Explain the following function of Reserve Bank of India:

Issue of currency notes

Answer 1

1. The RBI has been given the sole authority to issue currency under the provisions of the Reserve Bank of India Act, 1934.
2. The Reserve Bank of India is the sole authority for the issue of currency notes in India, except one-rupee notes and coins which are issued by the Government of India.” 
3. The RBI follows the Minimum Reserve System for issuing currency. Under this system, it must maintain a minimum reserve of ₹200 crore, of which ₹115 crore must be in gold and the remaining in foreign securities. The rest of the currency can be issued as per the needs of the economy.
4. This monopoly of note-issuing ensures uniformity of currency, helps in maintaining public confidence, and gives the RBI better control over the money supply, which is essential for maintaining price stability and monetary control.
5. Thus, the function of issuing currency enables the RBI to regulate the circulation of money in the economy and support overall economic stability.