12-12-2012, 06:26 PM
Money Circulation in the Indian Economy
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Section 22 of RBI Act
In terms of Section 22 of RBI is the sole authority for issue of currency in India including one rupee coins/notes.
One rupee coins/notes are issued by the Government of India but put into circulation through RBI.
RBI took over the function of issue of notes from GOI from April 1, 1935.
Actual notes were issued by RBI only in January 1938 and until then Bank was issuing currency notes of Government of India.
BANK NOTE
Banknotes are Indian Currency Notes authorized to put into circulation among public only by Reserve Bank of India (RBI). Since RBI is the sole authority to issue notes they are called Banknotes.
Rupee coins and Small coins
Rupee coins and Small coins are issued by Government of India through RBI.
Rupee coins are Re.1, Rs.2 and Rs.5 and Small coins are issued in the denominations of Ps.25 and Ps.50. The highest denomination of coin that can be issued by GOI is Ps. 1000 as per Section 6 of Coinage Act, 1906.
Printing of Notes and Minting of Coins
Notes are printed by Government of India at its printing presses at Nashik and Dewas and at the presses of Bharatiya Reserve Bank Note Mudran Private Ltd. (BRBNMPL) at Mysore and Salboni.
Coins are minted at the four Government Mints at Mumbai, Kolkata, Noida and Hyderabad.
Presses are required to produce around 12,000 million pieces of notes per annum to maintain clean notes in circulation.
The average life of a note in circulation varies from 1 year to 2 years.
The cost of production of banknote is reimbursed by the Bank to the Press and the cost of production of coins is borne by GOI itself.
The design, form and material of the bank notes are recommended by Central Board of Directors of RBI and approved by GOI.
Issue of Notes and Coins
The issue of fresh notes and coins is conducted by RBI in the Issue Department.
These fresh notes are stocked the Currency Chest of RBI and other agencies.
The currency chest is provided to a branch of public sector bank or to a Government Treasury, which has opted to function as an agent of RBI.
Thus we have as on June 2007 a wide net work of 4,301 currency chests and 4,027 small coin depots apart from 18 Issue Offices, a sub-office at Lucknow and a currency chest at Kochi of Reserve Bank of India.
Network of Currency Chests
RBI is located only in 18 places for currency operations
Distribution of notes and coins throughout the country is done through designated bank branches, called chests
Chest is a receptacle in a commercial bank to store notes and coins on behalf of the Reserve Bank
Deposit into chest leads to credit of the commercial bank’s account and withdrawal, debit
Currency Chest Mechanism
Net deposit /withdrawal of notes and coins at the chest is reported on daily basis to parent Issue Office
Overall deposit or withdrawal leads to credit or debit of bank’s account in RBI
Net withdrawal from chests means expansion of currency and deposits means contraction
Notes in circulation being the liability of RBI, it adjusts its asset-liability position centrally for such expansion or contraction