Criteria to Print Currency
You must have heard the term Minimum reserve system, which our reserve bank of India follows to maintain cash flow. People who have never heard this term should first know what a minimum reserve system is. And how it works. The currency issue system was implemented in 1956, and because of the wide range of benefits, we are still following this system. The RBI follows this method to maintain the supply of money in the economy, by following this method, RBI will print money as per the requirement of this system.
The Minimum reserve system states that the Reserve bank of India should maintain a minimum of 200 crore money which should be in the form of foreign currencies, gold coins and gold bullion. RBI stores a minimum of 115 crore funds in the form of gold coins or gold bullion, and the rest of the funds will be stored in the form of foreign currencies.
But what is the criteria for printing currency in India? Most people ask, and the answer is simple: RBI and the government of India fix the criteria, And now the question is how does RBI decide the production of currency notes? And how much production does RBI do at a time? Everyone can read this article completely to know more about the Minimum reserve system, rules for printing currency in India, what is the criteria to print currency and this is what we get as an answer for the criteria for printing currency in India.
The Main Objective of the Minimum Reserve System
As mentioned earlier, RBI will maintain the minimum reserve money. After fulfilling the minimum reserve amount, RBI can print currency notes as per the requirement in the economy after getting prior permission from the Government of India. The main objective of Minimum reserve systems is mentioned below:
MRS has ensured the appropriate supply of currency in the economy.
To ensure the confidence of the general public who hold the Indian currency, they will receive the value of money even if the value changes.
MRS can implement some rules for printing currency in India.
It can also be a token of confidence for the general public because RBI is liable to pay the face value of notes, and RBI also promises the public to pay a sum of 100/500 rupee.
The minimum reserve system of the RBI increases economic growth without increasing the inflation in the economy.
The objectives of RBI have been explained clearly, and now people might doubt on what basis money is printed? The questions may differ, but the answer is simple, RBI prints money based on the economic need. Whatever the need may be, RBI sticks to the rules of MSR and prints money accordingly.
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Rules for Printing Currency in India
The Reserve Bank of India has all the powers to print currency notes in India, but there are some limitations and rules for printing currency in India. The powers of the reserve bank are limited because the government of India will implement all the rules for the reserve bank. They will determine the denomination of the notes and decide the design of currency notes that is printed.
RBI has the right to print notes up to 10000 Rs. denomination after discussing with government officials. If there is a demand for banknotes, then India’s reserve bank raises a written request for the government, and it has to be approved by the government to print notes in India. While making critical decisions the government will discuss with the senior staff and the governor of RBI.
The Reserve Bank of India is responsible for maintaining India’s financial system and supervising all the banks located across the country. The Reserve Bank reviews its monetary policy every six months, and this policy aims to control bank credits, inflation, and interest rates.
Our country has a lot of private, public, regional and many rural banks, so all these banks come under the control of RBI. Therefore, the financial stability of the banks will be monitored and maintained by the Reserve bank of India. In short, currencies are printed and managed by the RBI, whereas the government decides which denomination should be circulated and when it should be circulated. The minimum reserve system of the RBI has helped people find the right solutions and is mainly used to standardize the country’s financial system to avoid confusion.
So, what is the criteria for printing currencies in India? Some of the factors that RBI will consider for printing new currency notes in India are mentioned below:
An increase in the price of all the required commodities and things can happen due to the increase in fuel and gas cylinders. Because all the products must be transported using a vehicle and the vehicle needs some fuel to run, inflation mainly happens due to increased prices. RBI will decide to print new notes during the time of inflation to reduce the inflation.
RBI will prefer to print notes depending upon the gross domestic product. If the gross domestic product rate decreases, RBI will print notes after consulting with the government to make it right.
Printing of new notes will take place if minimum reserve system time insists the system do so.
Another important criterion is the Soiled and Mutilated note, which means the damaged and burnt notes. If people have such notes, they will approach the bank to exchange them, and banks will send those notes to the RBI. They have a percentage, and if these notes cross the limit, they will start printing the next set of currency notes.
Issuing of New Currencies
The new currencies will be printed and issued by RBI, which means they are responsible for the money issued for the people because they are the bearer of the currency. So they need to pay the exact value as mentioned in the currency. So to pay the currency, it is necessary to hold an equivalent amount of assets in RBI. Therefore RBI will hold some money in government bonds or foreign assets, which is equivalent to the newly issued currency. So the minimum research system acts as the source of security, and for issuing new currencies, this method has been implemented and followed by RBI for a long period.
Advantages of Minimum Reserve System:
MRS is elastic in nature
Minimum reserves will not be increased by increasing the issue of new notes.
This method can be widely used in critical situations like war, natural disorders, and emergency situations, etc.
Mainly this method is suitable for poor and developing countries.
The use of monetary policies in the right way can provide us with good results and reduce inflation.
Disadvantages of Minimum Reserve System:
Over usage of this method can result in inflation.
FAQs on Minimum Reserve System
1. What is the minimum reserve system?
The Reserve Bank of India decides the minimum reserve requirement for banks based on the risk associated with lending to them. Presently, it is 20%. The Reserve Bank introduced this limit in 1979 as a demand-supply method to ensure that enough money was left over for transactions after satisfying commercial banks’ demand for required liquidity. This limits excessive credit by increasing risky investments and incentivizing higher deposits.
The credit crunch means less lending and banking activities which can crimp economic growth rates. Consequently, there would be an urgent need to improve cash flows through other modes of settlement to arrest any delay in raising credit offtake or tackling issues around liquidity management faced by all these banks who are eager to lend more.
2. What are the criteria to print currencies?
Previously, the Reserve Bank of India outsourced printing to Security Printing and Minting Corporation (SPMC), a joint venture with SPMC Limited. The agreement expired on March 31, 2014, without any bids. As a result, the Government of India owned Bharatiya Reserve Bank Note Mudran Private Limited (BRBNMPL), which now produces and supplies banknotes through licensed printing presses to the RBI.
The tender for printing Indian currency notes was cancelled in 2017 following allegations that tender conditions favoured some companies over others. There has since been a dearth of new currency notes, but the government claims it has sufficient stocks to last until 2020; however, there are still difficulties reported in parts of the country regarding cash availability and withdrawal during critical situations.
3. Who decides how many notes are to be printed?
The Reserve Bank of India, along with the Government of India through the Department of Economic Affairs and Ministry for Housing and Urban Poverty Alleviation, decides how many notes are to be printed, bearing in mind that one can use multiple modes like holding cash and deposit machines, etc.
So, the answer of who decides how many notes are to be printed? The decision is made by the Minister of Finance, India, and announced in the Central Gazette. The Reserve Bank of India then makes a request to the Government of India for security paper, which it then supplies. The RBI also assists in designing new currency notes and brings out booklets that inform people about features like watermarks, colour shift, latent images, etc. that are not actively used now but can be used anytime as technology develops.
