RBI and Its Currency Management

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The Reserve Bank of India is the country’s sole authority in charge of managing currency circulation as well as printing. The printing of new currency, as well as various monetary policy tools such as the Cash Reserve Ratio, Statutory Liquidity Ratio, repo and reverse repo, and bank rate, are all part of its monetary policy management.

In addition to printing, the Reserve Bank collaborates with the government on the design of banknotes, including security features. The Reserve Bank calculates the number of banknotes that will be required by denomination and orders them from the various printing presses. To maintain the quality of banknotes in circulation, banknotes received from banks and currency chests are examined and those that are fit for circulation are reissued, while those that are not (soiled and mutilated) are destroyed.

RBI Currency Management

The Reserve Bank decides on the number and value of banknotes to be printed each year. The need to meet the demand for banknotes as a result of inflation, GDP growth, banknote replacement, and reserve stock requirements determines the number of banknotes that must be printed.

The Reserve Bank’s currency management function is responsible for ensuring that the economy has a sufficient supply of clean banknotes in various denominations. The introduction of the Mahatma Gandhi (New) Series of 100 and 20 denomination notes, the amendment of the Note Refund Rules, 2009, and the upgrade of Currency Verification and Processing Systems (CVPS) across Reserve Bank offices were all significant developments in 2018-19.

The Indian government, on the other hand, determines the number of coins to be minted based on Reserve Bank indents. The Reserve Bank currently manages currency operations through 18 issue offices and a large network of currency chests in Ahmedabad, Bangalore, Belapur, Bhopal, Bhubaneswar, Chandigarh, Chennai, Guwahati, Hyderabad, Jaipur, Jammu, Kanpur, Kolkata, Mumbai, Nagpur, New Delhi, Patna, and Thiruvananthapuram.

The coins are delivered to Reserve Bank offices in Hyderabad, Kolkata, Mumbai, and New Delhi by the mints (Mint linked Offices). The Reserve Bank’s other offices receive the currency from the offices based in the metros. Banknotes and rupee coins are kept in the currency chests, while small coins are kept in the small coin depots.

Currency Chests and Small Coin Depots deliver banknotes and coins to bank branches for distribution to the general public. To facilitate the distribution of banknotes and rupee coins, the Reserve Bank has authorized selected scheduled bank branches to open Currency Chests and act like currency warehouse. The Reserve Bank of India keeps banknotes and rupee coins in these storage facilities.

RBI Departments engaged in the issue of currency notes and their circulation

The RBI’s Issue Department is responsible for the creation and circulation of currency notes. It is responsible for the safekeeping of currency notes in circulation and for maintaining the minimum reserve required to issue currencies. In accordance with the Reserve Bank of India Act, 1934, the Department of Currency Management is responsible for administering the Reserve Bank’s currency management functions.

Gold and coring currencies are included in the reserves which are used to issue notes. The RBI is required to keep a minimum reserve of Rs 200 crores in foreign currencies, gold coins, and gold bullion under the minimum reserve system, which was established in 1956. Rs115 crore of this should be in the form of gold coins or bullion. This reserve is proposed as a show of confidence when printing currency, and it is not proportional to the currency’s issue value.

The Issue Department can only issue notes in exchange for other denominations of notes or against specified assets (foreign exchange and gold).

Department of Currency Management

The Department of Currency Management is charged with administering currency management functions, which are a core function of the Reserve Bank of India, as per the Reserve Bank of India Act, 1934. The issuance of notes and coins, as well as the removal of unfit notes from circulation, are the main concerns of currency management. This work is carried out by the Reserve Bank’s 18 issue offices, as well as a vast network of 4195 currency chests, 488 repositories, and 3562 small coin depots run by banks and government treasuries.

Organizational setup

A Chief General Manager supervises the Department of Currency Management (DCM). The Department has a planning division, a treasury division, a note processing, and data analysis division, a note exchange division, a currency chest division, a security and discipline cell, an inspection follow-up, coordination, and development division, a staff cell, an administrative division, and a forged note vigilance cell and a museum cell.

The Department receives currency notes from four printing presses. The Government of India owns two currency note printing presses, while the Reserve Bank owns two through its wholly-owned subsidiary, Bharatiya Reserve Bank Note Mudran Ltd. (BRBNML). Government-owned presses can be found in Nasik (Western India) and Dewas (Central India) (Central India). Mysore (Southern India) and Salboni (Eastern India) are the other two presses (Western India). The Indian government owns four mints where coins are produced. Mumbai, Hyderabad, Calcutta, and Noida are the locations of the mints.

Functions

The Department deals with policy and operational issues in the following areas:

  • banknotes design
  • predicting demand for banknotes and coins
  • ensuring the smooth distribution of banknotes and coins across the country, as well as the removal of unfit notes and out-of-date coins from circulation
  • ensuring the currency’s integrity,
  • enforcing the RBI (Note Refund) Rules, and
  • Ongoing review/rationalization of work systems/procedures at the issue offices and
  • disseminating information to the general public on currency-related issues

When was the legal tender of currency notes withdrawn?

The legal tender status of currency has been revoked twice in the past. In 1978, higher-denomination banknotes such as Rs 1000, Rs 5000, and Rs 10,000 were demonetized. Second, in 2016, the denominations of Rs 500 and Rs 1000 were demonetized. 

What is the procedure for withdrawing legal tender status?

Section 26(2) of the RBI Act 1934 states that, on the recommendation of the Central Board of the RBI, the central government may, by notification in the Gazette of India, declare that any series of banknotes of any denomination shall cease to be legal tender with effect from a date specified in the notification.

According to an RTI response, the RBI Board approved the 2016 demonetization hours before the PM announced it.

Developments in Currency in Circulation

The currency in circulation (CIC) includes both banknotes and coins. The Reserve Bank currently issues notes in denominations of two, five, ten, twenty, fifty, one hundred, two hundred, five hundred, and two thousand rupees. There are 50 paise coins, as well as 1, 2, 5, and 10 rupee coins, in circulation. In terms of value, banknotes made up the majority of the total CiC. (around 99 percent).

Fiat Currency

Because it is not pegged or fixed to a mass of precious metals like gold; the currency printed by RBI is known as “fiat” currency. The intrinsic value of such currencies is much higher than the extrinsic value, i.e. the cost of printing a 100 Rupee note is much lower than the intrinsic value of a 100 Rupee.

Today, every country uses fiat currency as a medium of exchange, and every country has some prerequisites for printing the currency, such as foreign exchange reserves or gold. In India, the Minimum Reserve System is used, which requires the Reserve Bank of India to provide a minimum backing of Rs.200 crores.

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