Question

History and main functions of reserve bank of india

Answer 1

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Answer 2

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Explanation:

The main function of the central bank is to act governor of the machinery of credit in order to secure stability of prices. It regulates the volume of credit and currency, pumping in more money when market is dry of cash, and pumping out money when there is credit. Broadly a central bank has two departments namely, issue department and banking department.

The main functions are:

(i) Issue of currency: the central bank is given the sole monopoly of issuing currency in order to secure control over volume of currency and credit. These notes circulate throughout the country as legal tender money.

(ii) Banker to the government: central bank functions as a banker to the government – both central and state governments. It carries out all banking business of the government.

(iii) Banker‘s bank and supervisor: Central Bank acts as banker‘s bank in three capacities:

(i) it is custodian of their cash reserves.

(ii) Central Bank is lender of last resort.

(iii) It acts as a bank of central clearance, settlements and transfers.

(iv) Controller of credit and money supply: it is an important function of a central bank to control credit and money supply through its monetary policy. There are two parts of monetary policy, viz, currency andcredit. Central bank has a monopoly of issuing notes and thereby can control the volumes of currency. Itcontrols credit and money supply by adopting quantitative and qualitative measures.