BANKING AFFAIRS

Detailed explanation-1: -The RBI issues currency note under the fixed minimum reserve system. RBI is required to maintain reserves of Rs 200 crores which includes Rs 115 crores as gold reserve and the remaining in foreign currency. This is called minimum reserve system.

Detailed explanation-2: -The Minimum Reserve System is the currency issue system followed by the RBI at present. It was adopted in 1956. The Minimum Reserve System which requires the RBI to keep a minimum reserve of Rs 200 crores comprising foreign currencies, gold coin and gold bullion (minimum of Rs 115 crore in the form of gold).

Detailed explanation-3: -In terms of Section 22 of the Act, Reserve Bank has the sole right to issue banknotes in India. Section 25 states that the design, form and material of bank notes shall be such as may be approved by the Central Government after consideration of the recommendations made by the Central Board of RBI.

Detailed explanation-4: -This system is applicable in India since 1956. According to this system, the Reserve Bank of India has to maintain assets of at least 200 crore rupees all the times. Out of this 200 crore, the 115 cr rupee should in the form of Gold or gold bullion and rest 85 cr. should be in the form of foreign currencies.

Detailed explanation-5: -Under this system, the monetary authority is required to keep 100% of the bullion (gold or silver) for every note issued. That is why it is also known as the Full Reserve System. This system has certain merits. It is safe and enjoys public confidence because there is full backing of the bullion for every note issued.