Economy Simplified: Main Functions of RBI explained.

1. The Reserve Bank of India was established on April 1, 1935 in accordance with the provisions of the Reserve Bank of India Act, 1934.
2. Though originally privately owned, since nationalisation in 1949, the Reserve Bank is fully owned by the Government of India.
3. The Reserve Bank’s affairs are governed by a central board of directors. The board is appointed by the Government of India in keeping with the Reserve Bank of India Act.¬†
4. Appointed/nominated for a period of four years.

Main Functions

Monetary AuthorityFormulates, implements and monitors the monetary policy.
Objective: maintaining price stability while keeping in mind the objective of growth.
Regulator and supervisor of the financial systemPrescribes broad parameters of banking operations within which the country’s banking and financial system functions.
Objective: maintain public confidence in the system, protect depositors’ interest and provide cost-effective banking services to the public.
Manager of Foreign ExchangeManages the Foreign Exchange Management Act, 1999.
Objective: to facilitate external trade and payment and promote orderly development and maintenance of foreign exchange market in India.
Issuer of currencyIssues, exchanges and destroys currency notes as well as puts into circulation coins minted by Government of India.
Objective: to give the public adequate quantities of supplies of currency notes and coins and in good quality.
Developmental rolePerforms a wide range of promotional functions to support national objectives.
Regulator and Supervisor of Payment and Settlement SystemsIntroduces and upgrades safe and efficient modes of payment systems in the country to meet the requirements of the public at large.
Objective: maintain public confidence in the payment and settlement system.
Related FunctionsBanker to the Government: performs merchant banking function for the central and the state governments; also acts as their banker.
Banker to banks: maintains banking accounts of all scheduled banks
Lender of Last ResortWhen commercial banks need more funds in order to be able to create more credit, they may go to market for such funds or go to the Central Bank. Central bank provides them funds through various instruments. This role of RBI, that of being ready to lend to banks at all times is another important function of the central bank, and due to this central bank is said to be the lender of last resort.

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