Gujarat BoardEnglish MediumSTD 12 CommerceEconomicsBANKING AND MONETARY POLICY3 Marks
Question
Explain the Monetary and Non-monetary function of Central Bank and explain each function in short.
✓
Answer
Central bank is an apex institution in the banking system its main objective is to control, regulate and stabilize the banking and monetary structure of the country.
The central bank performs its functions by two ways:
$(1)$ Monetary $($Quantitative$)$ function
$(2)$ Non-Monetary $($Qualitative$)$ functions.
$(1)$ Monetary Function of Central Bank$(RBI):$
$(1)$ Issue of Currency:
The Central Bank of India $(RBI)$ has the monopoly of issuing notes or paper currency.
It prints different denomination notes from $Rs. 2$ and more in the country.
$(2)$ Banker to the Government:
The central bank is the monetary agent of the government advises the government on all the financial matters and in the formulation of economic policy.
$(3)$ Banker to bank:
The central bank supervises, regulates and controls the credit creation policy of the commercial banks.
$(4)$ Credit Control:
The $RBI$ controls the process of credit creation and money supply in the economy with the help of various tools of monetary policy.
$(5)$ Custodian of Foreign Exchange:
$RBI$ maintains the value of Indian currency by buying and selling foreign exchange in the open market as and when required.
It also administers foreign exchange reserves by checking the inflow or outflow of foreign exchange.
$(2)$ Non-Monetary Functions of Central Bank$(RBI):$
$(1)\ RBI$ supervises the functioning of the entire financial and money markets which include branch expansion and methods of working of scheduled banks, working of non-banking finance companies and of co-operative banks.
$(2)\ RBI$ tries to create banking awareness among people.
$(3)$ Major economic reforms and changes came of it is necessary that people and economic units of all segments receive benefits of such changes.
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