Question
The present monetary system in India is?Â
Solution
The relationship between currency issued and its reserve backing is usually done on the basis of a reserve system. Currencies are issued by the RBI with the backing of reserves comprised of gold and foreign exchange (foreign currencies). Since 1956 the RBI follows Minimum Reserve System at present. Under the Minimum Reserve System, the RBI has to keep a minimum reserve of Rs 200 crore comprising of gold coin and gold bullion and foreign currencies. Out of the total Rs 200 crores, Rs115 crore should be in the form of gold coins or gold bullion. Before 1956 India was following Proportional Reserve System. The purpose of shifting to MRS was to expand money supply.
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