Question

Q12) What is the significance of centralized cash reserves with the central

bank? (3)​

Answer 1

Answer:

Significance of centralised cash reserves with Central Bank are:

(i) Banks get financial accommodation when required.

(ii) Central Bank gets an opportunity to exercise control over banking system of the country.

(iii) It maintains uniformity in currency notes

Answer 2

Centralised cash reserves enable the RBI to exercise control over the commercial banks. Because these reserves depend on CRR (fixed by RBI in India), by varying the CRR, the RBI can increase or decrease the credit creation capacity of the commercial banks.