Reserve Bank a currency notes using Authority

As the central bank of the country the Reserve Bank of India performs both the traditional functions of a central bank and a variety of developmental ad promotional functions. The Reserve Bank of India Act, 1934, confers upon it the powers to act as note issuing authority, banker’s bank and banker to the Government.

Reserve Bank as Note Issuing Authority:

The currency of our Country consist of notes and coins (including subsidiary coins) issued by the Government of India and Bank notes issued by the Reserve Bank. As required by Section 38 of the Reserve Bank of India Act, Government puts into circulation one rupees coins and notes through Reserve bank only. The Reserve Bank has the sole right to issue bank notes in India. The notes issued by the Reserve Bank and the one rupee notes and coins issued by the government are unlimited legal tender. Reserve Bank also bears the responsibility of exchanging notes and coins into those of other denominations as required by the public.

As required by the Reserve Bank of India Act, the issues of notes and the general banking business of the Bank are undertaken by two separate departments of the Bank. The Issue Department is responsible for the issue of new notes. It keeps its assets which form the backing for the note issue, quite separate from the assets of the Banking Department.

The business of banking is undertaken by the banking Department which holds stock of currency with itself. Whenever necessary, the Banking department replenishes the stock of currency from the Issue department against equivalent transfer of eligible assets. Similarly, if the stock of currency with the banking department becomes surplus to its normal requirements, the excess is returned to the issue department in exchange of equivalent assets.

The assets of the Issue Department against bank notes are issued consist of the following, namely:

1. Gold coins and Bullion
2. Foreign securities
3. Rupee coins
4. Government of India rupee securities, and
5. The bills of exchange and promissory notes payable in India, which are eligible or purchase by the Bank.

The aggregate value of gold coins and bullion shall not at any time be less than Rs 115 crores and together with foreign securities (i.e. total of (1) and (2) above) not less than Rs 200 crores. The Reserve Bank, is also empowered to reduce its holding of foreign securities in the Issue Department to any lesser amount, with previous sanction of the Central Government.

Currency Chests: The Reserve Bank has made adequate administrative arrangements for undertaking the function of distribution of currency notes and coins. The issue Department has opened its offices in 10 leading cities for this purpose. Moreover, currency chests have been maintained all over the country to facilitate the expansion and contraction of currency in the country. Currency chests are receptacles (i.e. boxes or containers) in which stocks of new or re-issuable notes are stored along wit rupee coins. The currency chests and repositories are run by the Reserve Bank, State Bank and its subsidiaries, Public sector Banks and Government Treasuries and Sub-Treasuries. The stock of new notes is thus held in currency chests scattered over the entire country and maintained by the public sector banks in most of the cases. There are several advantages to the bank or the treasury maintaining a currency chest:

If its payments on a particular day exceed its own balance, it can immediately withdraw funds from the chest. Likewise, if the funds are in surplus it can deposit into it any such surplus funds. Thus the necessity for the physical transfer of cash at frequent intervals from one place to another is avoided. The Treasuries and bank branches work with relatively small balance.

The currency chests facilitate the exchange of rupees coins for notes and supply of notes of lower denomination for those of higher denominations and vice versa and also the issue of new notes for old and soled notes.

The currency chests also serve as the basis for providing remittance facilities to banks and the public.