Which of the following is the reason for giving sole right to issue currency notes to Central Bank?
(a) It ensures public faith in the currency system
(b) It helps in stabilisation of internal and external value of currency.
(c) It leads to uniformity in note circulation.
(d) All of these
Ans – (d)
One of the functions of the Central bank is
Currency Authority (or Bank of Issue):
The Central Bank has the sole authority for the issue of currency in the country.
In India, the Reserve Bank of India (RBI) has the sole right to issue paper currency notes (except one rupee note and coins, which are issued by the Ministry of Finance).
The One Rupee note bears the signature of the Finance Secretary, while other currency notes bear the signature of Governor RBI.
All the currency issued by the Central Bank is its monetary liability, i.e., the Central Bank is obliged to back the currency with assets of equal value, to enhance the public confidence in paper currency.
Advantages of Sole Authority of Note issue with RBI
1. It leads to uniformity in note circulation.
2. It gives the central bank power to influence the money supply because currency with the public is a part of the money supply.
3. It enables the government to have supervision and control over the central bank with respect to the issue of notes.
4. It ensures public faith in the currency system.
5. It helps in stabilisation of the internal and external value of the currency.