Bank notes

Bank notes

Topic: economy

Context:

The government has no plan to recognise Bitcoin as a currency in the country, Finance Minister Nirmala Sitharaman informed the Lok Sabha on Monday.

Concept:

RBI Act 1934:

• The Reserve Bank of India was established on April 1, 1935 in accordance with the provisions of the Reserve Bank of India Act, 1934.
• The Central Office of the Reserve Bank was initially established in Calcutta but was permanently moved to Mumbai in 1937. The Central Office is where the Governor sits and where policies are formulated.
• Though originally privately owned, since nationalization in 1949, the Reserve Bank is fully owned by the Government of India.

Main Functions:

1. Monetary Authority:

It implements and monitors the monetary policy and ensures price stability while keeping in mind the objective of growth.

An amendment to RBI Act, 1934, was made in May 2016, providing the statutory basis for the implementation of the flexible inflation targeting framework.

Section 45ZB of the amended RBI Act, 1934, also provides for an empowered six-member Monetary Policy Committee (MPC) to be constituted by the Central Government by notification in the Official Gazette

2. Manager of Foreign Exchange:

Manages the Foreign Exchange reserves of India.

It facilitates external trade and payment and promotes orderly development and maintenance of foreign exchange market in India.

It also maintains external value of rupee.

3. Issuer of Currency:

Issues and exchanges or destroys currency and coins not fit for circulation.

Objective: to give the public adequate quantity of supplies of currency notes and coins and in good quality.

Legal Tender is a coin or a banknote that is legally tenderable for discharge of debt or obligation.

The coins issued by Government of India under Section 6 of The Coinage Act, 2011, shall be legal tender in payment or on account provided that a coin has not been defaced and has not lost weight so as to be less than such weight as may be prescribed in its case.

Bank notes in India:

As per Section 26 of Reserve Bank of India Act, 1934, the Bank is liable to pay the value of banknote. This is payable on demand by RBI, being the issuer.

Banknotes in India are currently being issued in the denomination of ₹10, ₹20, ₹50, ₹100 ₹200, ₹500, and ₹2000. These notes are called banknotes as they are issued by the Reserve Bank of India. The printing of notes in the denominations of ₹2 and ₹5 has been discontinued and these denominations have been coinised as the cost of printing and servicing these banknotes was not commensurate with their life.

However, such banknotes issued earlier can still be found in circulation and these banknotes continue to be legal tender. ₹1 notes are issued by the Government of India from time to time and such notes including those issued in the past also continue to be legal tender for transactions.

Digital Currency:

• It is a payment method which exists only in electronic form and is not tangible.
• It can be transferred between entities or users with the help of technology like computers, smartphones and the internet.
• Although it is similar to physical currencies, digital money allows borderless transfer of ownership as well as instantaneous transactions.
• Digital currency is also known as digital money and cybercash.
• E.g. Cryptocurrency

The Reserve Bank of India (RBI) is working on a phased implementation strategy for its own digital currency and is in the process of launching it in wholesale and retail segments in the near future.

A high-level inter-ministerial committee set up by the Finance Ministry had recommended Central Bank Digital Currency (CBDC) with changes in the legal framework including the RBI Act, which currently empowers the RBI to regulate issuance of bank notes.