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Which of the following systems is followed by the Reserve Bank of India for issuing currency?
- a)Proportionate system
- b)Simple deposit system
- c)Minimum reserve system
- d)Fixed fiduciary issue system
Correct answer is option 'C'. Can you explain this answer?
Verified Answer
Which of the following systems is followed by the Reserve Bank of Indi...
The RBI follows the minimum reserve system, wherein it has to maintain a minimum quantity of gold bullion as reserves to issue currency.
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Which of the following systems is followed by the Reserve Bank of Indi...
The correct answer is option 'C' - Minimum reserve system.
Explanation:
The Reserve Bank of India (RBI) follows the Minimum Reserve System for issuing currency in India. Let's understand this system in detail:
1. Minimum Reserve System:
- Under the Minimum Reserve System, the RBI is required to maintain a certain minimum reserve of gold and foreign securities with a value of Rs. 200 crore, of which at least Rs. 115 crore should be in gold.
- This means that the RBI needs to have a minimum reserve of Rs. 200 crore in its vaults to back the currency it issues.
- The minimum reserve requirement ensures that the currency issued by the RBI has a strong backing and maintains confidence among the public.
2. Currency Issue:
- The RBI has the sole authority to issue currency notes in India. It issues currency notes of various denominations, such as Rs. 10, Rs. 20, Rs. 50, Rs. 100, Rs. 200, Rs. 500, and Rs. 2000.
- The currency notes issued by the RBI are legal tender, which means they can be used for all transactions within the country.
- The RBI also has the power to withdraw currency notes from circulation if they are damaged, worn out, or deemed unfit for use.
3. Other Systems:
a) Proportionate System: This system is not followed by the RBI for issuing currency. The proportionate system refers to the practice of printing currency notes in proportion to the gold reserves held by the central bank. However, this system is not used by the RBI.
b) Simple Deposit System: This system is not followed by the RBI for issuing currency. The simple deposit system refers to the practice of issuing currency against the deposits made by commercial banks with the central bank. However, this system is not used by the RBI.
d) Fixed Fiduciary Issue System: This system is not followed by the RBI for issuing currency. The fixed fiduciary issue system refers to the practice of issuing a fixed amount of currency notes without any backing of gold or reserves. However, this system is not used by the RBI.
In conclusion, the Reserve Bank of India follows the Minimum Reserve System for issuing currency, which ensures that there is a minimum reserve of gold and foreign securities to back the currency issued by the RBI.
Explanation:
The Reserve Bank of India (RBI) follows the Minimum Reserve System for issuing currency in India. Let's understand this system in detail:
1. Minimum Reserve System:
- Under the Minimum Reserve System, the RBI is required to maintain a certain minimum reserve of gold and foreign securities with a value of Rs. 200 crore, of which at least Rs. 115 crore should be in gold.
- This means that the RBI needs to have a minimum reserve of Rs. 200 crore in its vaults to back the currency it issues.
- The minimum reserve requirement ensures that the currency issued by the RBI has a strong backing and maintains confidence among the public.
2. Currency Issue:
- The RBI has the sole authority to issue currency notes in India. It issues currency notes of various denominations, such as Rs. 10, Rs. 20, Rs. 50, Rs. 100, Rs. 200, Rs. 500, and Rs. 2000.
- The currency notes issued by the RBI are legal tender, which means they can be used for all transactions within the country.
- The RBI also has the power to withdraw currency notes from circulation if they are damaged, worn out, or deemed unfit for use.
3. Other Systems:
a) Proportionate System: This system is not followed by the RBI for issuing currency. The proportionate system refers to the practice of printing currency notes in proportion to the gold reserves held by the central bank. However, this system is not used by the RBI.
b) Simple Deposit System: This system is not followed by the RBI for issuing currency. The simple deposit system refers to the practice of issuing currency against the deposits made by commercial banks with the central bank. However, this system is not used by the RBI.
d) Fixed Fiduciary Issue System: This system is not followed by the RBI for issuing currency. The fixed fiduciary issue system refers to the practice of issuing a fixed amount of currency notes without any backing of gold or reserves. However, this system is not used by the RBI.
In conclusion, the Reserve Bank of India follows the Minimum Reserve System for issuing currency, which ensures that there is a minimum reserve of gold and foreign securities to back the currency issued by the RBI.
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Which of the following systems is followed by the Reserve Bank of Indi...
RBI follows minium reserve system .
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Which of the following systems is followed by the Reserve Bank of India for issuing currency?a)Proportionate systemb)Simple deposit systemc)Minimum reserve systemd)Fixed fiduciary issue systemCorrect answer is option 'C'. Can you explain this answer?
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