Q. Which of the following best represents the functions of RBI?
1. RBI has the sole autonomy to print notes and mint Rs 1 coins.
2. RBI policy of sterilization helps in stabilizing exchange rates.
Select the correct answer using the codes given below:

[A] 1 only

[B] 2 only

[C] Both 1 and 2

[D] Neither 1 nor 2

Answer: B
Notes:

Explanation: RBI was established in 1935 under the provisions of RBI Act, 1934.

RBI has seven major functions:

  • Print Notes: RBI has the sole autonomy to print notes. Government of India has the sole authority to mint coins and one rupee notes NOT RBI.
  • Banker to the Government: It manages government’s deposit accounts. It also represents govt. as a member of the IMF and World Bank.
  • Custodian of Commercial Bank Deposits
  • Custodian to Country’s Foreign Currency Reserves
  • Lender of Last Resort: Commercial banks come to RBI for their monetary needs in case of emergency.
  • Central Clearance and Accounts Settlement: As RBI keeps cash reserves from commercial banks therefore it rediscounts their bills of exchange easily.
  • Credit Control: It controls supply of money in the economy through its monetary policy
  • The Banking Regulation Act 1949 gives the Reserve Bank of India (RBI) the power to license banks, have regulation over shareholding and voting rights of shareholders;
  • supervise the appointment of the boards and management;
  • regulate the operations of banks; lay down instructions for audits;
  • control moratorium, mergers and liquidation;
  • issue directives in the interests of public good and on banking policy, and impose penalties.
  • Sterilization process is used to manipulate the value of one domestic currency relative to another in foreign exchange market.

Source: PIB