explain the minimum reserve system?
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The relationship between note issue and its reserve backing is usually done on the basis of a reserve system by central banks across the world. The reserve system provides guidelines for the issue of new currencies.
In India, currencies are issued by the RBI with the backing of reserves comprised of gold and foreign exchange (foreign currencies). For the issue of currencies, the RBI follows Minimum Reserve System at present. The Minimum Reserve System (MRS) is followed from 1956 onwards.
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. The purpose of shifting to MRS was to expand money supply to meet the needs of increasing transactions in the economy.
The minimum reserve is a token of confidence and doesn’t have any practical connection with amount new currencies issued by the RBI. Under the Minimum Reserve System, RBI can issue unlimited amount of currency by keeping the reserve. But RBI follows some principle or rule for issuing new currencies based upon economic growth and transaction needs of the people.
i hope it helps u
In India, currencies are issued by the RBI with the backing of reserves comprised of gold and foreign exchange (foreign currencies). For the issue of currencies, the RBI follows Minimum Reserve System at present. The Minimum Reserve System (MRS) is followed from 1956 onwards.
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. The purpose of shifting to MRS was to expand money supply to meet the needs of increasing transactions in the economy.
The minimum reserve is a token of confidence and doesn’t have any practical connection with amount new currencies issued by the RBI. Under the Minimum Reserve System, RBI can issue unlimited amount of currency by keeping the reserve. But RBI follows some principle or rule for issuing new currencies based upon economic growth and transaction needs of the people.
i hope it helps u
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under the minimum reserve system RBI keep a minimum reserve system rs 200 crore comprisingof gold coin and gold billion foreign currencies .
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