Currency Management by Reserve Bank of India (RBI)


The Reserve Bank derives its role in currency management from the Reserve Bank of India Act, 1934.The Reserve Bank manages currency in India. The Government, on the advice of the Reserve Bank, decides on various denominations of banknotes to be issued. The Reserve Bank also co-ordinates with the Government in the designing of banknotes, including the security features. The Reserve Bank estimates the quantity of banknotes that are likely to be needed denomination-wise and accordingly, places indent with the various printing presses. The aim of the Reserve Bank is to provide good quality notes to members of public. Towards this aim, the banknotes received back from circulation are examined and those fit for circulation are reissued and the others (soiled and mutilated) are destroyed so as to maintain the quality of banknotes in circulation.
Role of Government of India
In terms of Section 25 of RBI Act, 1934 the design of banknotes is required to be approved by the Central Government on the recommendations of the Central Board of the Reserve Bank of India. The responsibility for coinage vests with the Government of India on the basis of the Coinage Act, 2011. The Government of India is also responsible for the designing and minting of coins in various denominations.
Volume and Value of Banknotes
The Reserve Bank based on the demand requirement indicates the volume and value of banknotes to be printed each year to the Government of India which get finalized after mutual consultation. The quantum of banknotes to be printed, broadly depends on the requirement for meeting the demand for banknotes, GDP growth, replacement of soiled banknotes, reserve stock requirements, etc.
The Reserve Bank estimates the demand for banknotes on the basis of the growth rate of the economy, inflation rate, the replacement demand and reserve stock requirements by using statistical models/techniques. The Government of India in consultation with the Reserve Bank of India decided on the design of banknotes.
At present, notes of Rs 10; Rs 100; Rs 500; and Rs 1,000 are only printed. The printing of Re 1, Rs 2 and Rs 5 has been stopped as these have been coinised. However, the RBI has the powers to print currency notes of up to Rs 10,000 denomination. But, an amendment to the Reserve Bank of India Act, 1934 will be needed if any note of higher denomination has to be printed.
Minting of coins is the responsibility of the government of India, and not of the RBI. For this reason, the Re 1 note has the signature of the Finance Secretary to the government of India. This has been so because when the one rupee note was reintroduced as a war time measure in 1940, it was issued by the government of India with the status of a coin. Government of India continued to issue Rupee one notes till 1994. A Rupee coin (Re 1 and above) can be used to pay/settle any amount sum, However, 50 paise coin cannot be used to pay/settle any amount above Rs 10. Coins of up to Rs 1,000 denominations can be minted. 
Currency Chest
To facilitate the distribution of banknotes and rupee coins, the Reserve Bank has authorised select branches of scheduled banks to establish currency chests. These are actually storehouses where banknotes and rupee coins are stocked on behalf of the Reserve Bank. As on December 31, 2013, there were 4209 currency chests. The currency chest branches are expected to distribute banknotes and rupee coins to other bank branches in their area of operation.
History of Notes
The process of issuing paper currency was started in the 18th century. Private banks such as – the Bank of Bengal, the Bank of Bombay, and the Bank of Madras – first printed paper money. It was only after the Paper Currency Act of 1861 that the government of India was given the monopoly to print currency. The government of India printed currency until the RBI was established in 1935, which then took up this responsibility. In 1938, India was printing banknotes of Rs 10,000 denominations!
The Rs 5-note was the first paper currency issued by RBI in January 1938. It had the portrait of George VI. Within the same year, currency notes of Rs 10; Rs 100; Rs 1,000; and Rs 10,000 were issued. In 1946, Rs 1,000 and Rs 10,000 notes were demonetised to curb unaccounted money. These were then reintroduced in 1954 (this time Rs 5,000 note was also printed), only to be withdrawn in 1978 again.

Sunday, 28th Dec 2014, 07:13:03 AM

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