Question

Explain the functions of the RBI with respect to the following:

1. Custodian of foreign exchange reserves.
2. Monopoly of note issue.
3. Clearing house facility.
4. Banker and fiscal agent to the government.

Answer 1

1. Custodian of foreign exchange reserves: The Reserve Bank of India manages foreign exchange reserves to ensure market stability. The RBI intervenes in the foreign exchange market to keep rates within certain levels.
2. Monopoly of note issue: The Reserve Bank of India is solely responsible for issuing currency notes. The RBI manages currency supply to keep prices stable and inflation under control.
3. Clearing house facility: RBI provides clearing house facilities to facilitate the settlement of inter bank transactions i.e payments through cheques, drafts etc.
4. Banker and fiscal agent to the government: The RBI supervises government transactions and accounts. It advises the government on monetary and fiscal policies. The RBI issues securities to the public to meet the government's financial needs.