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Unit 2: Reserve Bank of India

Notes
Figure 2..3 : Nature and Functions of the Central Bank

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Caution The Central Bank must have a special relation with the commercial banks whereby
it can influence the functioning and operations of these institutions in the implementation
of the government’s economic policy.

Self Assessment

State whether the following statements are true or false:

6. The Central Bank differs from other financial institutions.
7. The main function of the Central Bank is to regulate the monetary mechanism comprising
of the currency, banking and credit systems.

8. For promoting industrialization, the Reserve Bank has been providing finance through
various institutions, to large, medium and small-scale industries.
9. The main objective of the Reserve Bank of India is to demotion of monetization and
monetary integration of the economy.
10. The RBI has set many other institutions also in the category of industrial development
banks.

2.4.1 Traditional Central Banking Functions (monetary functions)

Bank of Issue – The Minimum Reserve System
1. The Reserve Bank has a separate Issue Department, which is entrusted with the issue of
currency notes. The assets and liabilities of the Issue Department are kept separate from
those of the Banking department.
2. Under Section 22 of the Reserve Bank of India Act, the Bank has the sole right to issue bank
notes of all denominations.

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