Why RBI needs to regulate the issue of bank notes

The Reserve Bank of India (RBI) was created under unexpected circumstances. The intention was felt to 'regulate the issue of bank notes and the custody of reserves with a view to securing monetary stability'. However, in the year 1929, the world had been hit by an striking economic crisis the 'Great Depression'. The monetary systems of the world were in confusion. There was no certain kind of monetary system was in existence in India. There fore it was decided to place a 'temporary provision' and that temporary provision was the Reserve Bank of India Act, 1934 ('the Act'). The India’s Central Bank established on 1st April 1935 under RBI Act 1934.

The RBI’s main objectives in 1934:

• to keep the reserves
• An static law and
• to issue bank notes        

Under the Act there were innumerable of amendments, extensive powers were negotiated on the Reserve Bank. The word 'Independent' does not exists in the Act but, over the years, the principle of Central Bank sovereign has been raised to the level of an permanent law. According to the provisions of Section 7 of the Act, the central government can give such directions to the RBI as it may consider necessary in the interest of public, but such power has never been exercised in 83 years of the Act. There was been times when the central government and RBI did not see eye-to-eye. In a very closed economy and with little reserves, the RBI was known more as a banking regulator and fisted controller of foreign exchange than as an issuer of bank notes.

History of RBI

• 1950-1960: In the 1950's the Indian Government, under its first Prime Minister Jawaharlal Nehru, Developed a centrally planned economic policy that focused on the agricultural sector.
• 1960-1969: The RBI was requested to establish and monitor a deposit insurance system. It should restore the trust in the national bank system and was initialized on 7th December 1961.

 Present Functions of RBI

• Issue of currency
• Development role
• Banker to bank
• Banker to government
• Inflation control
• Formulate monetary policy
• Manager of foreign reserve
• Clearing of house functions
• Regulations of banking system

Structure of RBI

The Organisation and Management of RBI is Vested on the Central Board of Directors. It is responsible for the management of RBI. Central board of RBI Consists of 20 members. It is constituted as follow

a) One Governor

b) Four Deputy Governors

c) Fifteen Directors