GENERAL KNOWLEDGE

Detailed explanation-1: -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-2: -This is the RBI’s way of controlling the excess flow of money in the economy. The cash balance that is to be maintained by scheduled banks with the RBI should not be less than 4% of the total NDTL, which is the Net Demand and Time Liabilities.

Detailed explanation-3: -Sole purpose of the Minimum Reserve System is to maintain the money supply in the economy without increasing the inflation and maintain the confidence of the general public in the currency.

Detailed explanation-4: -Essentially, the central bank’s priority is safety of the assets and their liquidity. Gold fulfils both these criteria comfortably. As such, gold is considered the most liquid asset among financial assets.