BANKING AFFAIRS

Detailed explanation-1: -The RBI follows the minimum reserve system, wherein it has to maintain a minimum quantity of gold bullion as reserves to issue currency.

Detailed explanation-2: -The RBI’s current currency-issuing system is known as the Minimum Reserve System. It was passed into law in 1956. The RBI is required to retain a minimum reserve of an amount of about Rs 200 crores in foreign currencies, gold coins, and gold bullion under the Minimum Reserve System.

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: -Reserve bank of India maintains certain reserves. This is to provide support to the total volume of currency issued by the Reserve Bank of India. According to proportional reserve system, out of the reserves, certain percentage or proportion has to be held in the form of precious metals like gold.

Detailed explanation-5: -The Minimum Reserve System (MRS) is followed from 1956 onwards. Under the Minimum Reserve System, the RBI has to keep a minimum reserve of Rs 200 crore comprising of gold coin and gold bullion and foreign currencies. Out of the total Rs 200 crores, Rs115 crore should be in the form of gold coins or gold bullion.