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Critical Topics and Their Significance for the UPSC CSE Examination on December 12, 2024

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Reserve Bank of India (RBI)

For Preliminary Examination:  Current events of national and international importance

For Mains Examination: GS II & III - Important Organisations & Indian Economy

Context:

The 26th Governor of the Reserve Bank of India (RBI) Sanjay Malhotra took charge of Mint Street on Wednesday, opening his account with a straight bat, committing to uphold and strengthen public trust in the central bank while maintaining a sense of continuity and the commitment to take appropriate decisions at the right time in public interest.

Read about:

Reserve Bank of India (RBI)

Monetary Policy Committee (MPC)

Key takeaways:

The Reserve Bank of India (RBI) serves as the central bank of India, tasked with overseeing and managing the country’s financial system. Established in 1935 under the Reserve Bank of India Act, 1934, it operates as a statutory body. Its key responsibilities include regulating the issuance and circulation of the Indian rupee and managing the central government’s finances. Acting as a banker’s bank, it oversees the banking sector and contributes significantly to India’s economic growth by supporting government development projects and policies.

Initially headquartered in Kolkata, the RBI moved to Mumbai in 1937. Originally a privately-owned entity, the RBI was nationalized in 1949, following Independence, and is now entirely owned by the Government of India.

Major Functions of the RBI

According to its preamble, the RBI is tasked with "regulating the issue of banknotes, maintaining reserves to secure monetary stability, and operating the currency and credit system to the country's advantage." It also aims to implement a modern monetary policy framework that balances price stability with economic growth.

Core Functions of the RBI

• Currency Issuance:

  • The RBI is the sole authority responsible for printing currency notes, except for the one-rupee note, which is issued by the Ministry of Finance.

• Banker to the Government:

  • The RBI provides banking services to both the central and state governments. It offers advice on monetary policy and manages the government’s public debt.

• Banker’s Bank:

  • Often referred to as the banker’s bank, the RBI performs functions for commercial banks similar to what banks do for their customers.

• Regulation of Credit:

  • The RBI controls the flow of money within the economy, addressing inflation and systemic risks through timely policy interventions.

• Management of Foreign Reserves:

  • The central bank maintains stability in foreign exchange rates by buying and selling foreign currencies as needed.

• Support for Development:

  • The RBI plays an essential role in supporting the government’s developmental programs and policies, taking measures to p