Who is the custodian of National reserves of international currency?a)SBIb)IDBIc)RBId)ICICICorrect answer is option 'C'. Can you explain this answer?

Question

Answer

The RBI acts as the custodian of the country's foreign exchange reserves, manages exchange control and acts as the agent of the government in respect of India's membership of the IMF

Answer

C: RBI

The Reserve Bank of India (RBI) is the custodian of the national reserves of international currency in India. The RBI is responsible for managing the country's foreign exchange reserves, which consist of a variety of foreign currencies and assets such as gold, special drawing rights (SDRs), and foreign currency assets.

The RBI uses the foreign exchange reserves to maintain the external value of the rupee and to intervene in the foreign exchange market as needed to stabilize the exchange rate. The RBI also uses the foreign exchange reserves to support the balance of payments of the country and to provide assistance to the government and banks in times of need.

The State Bank of India (SBI), Industrial Development Bank of India (IDBI), and Industrial Credit and Investment Corporation of India (ICICI) are all financial institutions in India, but they are not responsible for managing the national reserves of international currency. Only the RBI has this responsibility as the central bank of the country.

Answer

Custodian of National Reserves
The custodian of national reserves of international currency in India is the Reserve Bank of India (RBI). This role is crucial for maintaining the country's economic stability and managing its foreign currency reserves.

Role of the Reserve Bank of India (RBI)
- The RBI acts as the central bank of India and is responsible for formulating and implementing the country’s monetary policy.
- It manages the foreign exchange reserves, ensuring that India can meet its international payment obligations.
- The RBI also intervenes in the foreign exchange market to stabilize the currency and mitigate volatility.

Importance of Foreign Currency Reserves
- Foreign currency reserves are vital for maintaining economic confidence and stability.
- They help in managing exchange rates and provide a buffer against external shocks, such as sudden capital outflows or global economic downturns.
- The reserves enable the government to make international payments, thus supporting trade and investment.

Comparison with Other Banks
- While banks like SBI, IDBI, and ICICI are major commercial banks in India, they do not have the authority or responsibility to manage the national reserves.
- The RBI's unique position as the central bank gives it the exclusive role in currency management and reserve maintenance.
In summary, the Reserve Bank of India (RBI) is the custodian of national reserves of international currency, playing a pivotal role in ensuring economic stability and managing foreign exchange reserves.

Answer

C

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