Transcription
Study IQ IAS Your Selection Our Mission. Why RBI Cannot Print Unlimited Money. We think it has a note printing machine. Friends, we often use this saying about individuals whose wealth and grandeur leave us wide-eyed. But this saying only sounds good when spoken and heard. Because in real life, it is completely impossible and forbidden for anyone to print notes at their home. And if anyone ever tried to commit a serious crime like printing notes, they are well taken care of by our Indian jails. Well, you must know very well that the responsibility of printing currency notes in our country, India, lies with the Reserve Bank of India, i.e., RBI. Friends, RBI was established in 1926 on the suggestion of the Royal Commission on Indian Currency and Finance. This commission is also known as the Hilton Young Commission. Initially, RBI was established as a private bank. But after a few years, in 1949, it was nationalized and given the title of the Central Bank of India. Since then, RBI has been managed and controlled by the Ministry of Finance of the Government of India. The main objective of RBI is to maintain public confidence in the Indian economic system, protect the interests of depositors, and provide cost-effective banking services like cooperative and commercial banking. Apart from this, RBI maintains monetary stability by regulating the credit system in India. Not only this, this bank also manages India's foreign reserves. But among all these functions and powers of RBI, the most prominent is currency issuance. Under which RBI prints Indian currency and supplies these currencies throughout India. But do you also think that due to having such power, RBI can print as much currency as it wants? No. It is absolutely not like that. RBI cannot print unlimited currency for many reasons. And today we are going to discuss this power of RBI in detail. Under which we will analyze the main aspects that prevent RBI from printing unlimited currency. So let's begin. Power of RBI in Currency Issuance. Friends, under the currency issuance power, RBI is responsible for issuing and exchanging a sufficient supply of notes and coins. It is also important to note here that even though the circulation of coins is RBI's responsibility, their production is the responsibility of the Indian Government. According to the Coinage Act, 1906, the minting of coins is not the job of RBI but is in the hands of the Indian government. On the other hand, the responsibility of note printing lies with RBI. Along with this, RBI also takes special care of the quality of Indian currency notes and coins. The unit of RBI that performs the work of note printing is Bharatiya Reserve Bank Note Mudran Private Limited. This unit can print notes up to a maximum of ₹10,000. And if notes of higher denominations are to be printed, then the Reserve Bank of India Act, 1934 will have to be amended first by the Indian government. There are four printing presses in India for printing notes, located in Dewas in Madhya Pradesh, Nashik in Maharashtra, Mysore in Karnataka, and Salboni in West Bengal. While the printing presses in Dewas and Nashik are controlled by the Indian Government, the printing presses in Salboni and Mysore are managed by RBI itself. At the beginning of every year, RBI provides a schedule for printing notes to these printing presses, informing them when and how many notes to print. This data is prepared by RBI and its 31 regional offices. Not only this, RBI estimates through its statistical analysis how many notes are currently in circulation in the market, how many notes were destroyed last year, how many damaged notes were replaced, and how many new notes will be needed in the future. After analyzing all these factors, RBI consults with the Coins and Currency Division of the Finance Ministry, and after mutual consultation, RBI decides how many notes are to be printed in the new year. Friends, after this information, it is clear that only RBI and the Government have powers related to currency and coins. Therefore, it is natural to think that despite having so much authority, why doesn't RBI print notes as it pleases? However, there are two main reasons behind this, the first being the Minimum Reserve System and the second being inflation. Let us now try to understand these reasons in detail. Why the RBI Cannot Print Unlimited Money. Friends, the printing of currency notes in India is done on the basis of the Minimum Reserve System, i.e., MRS. This system has been implemented in India since 1957. According to this system, RBI has to maintain assets worth at least ₹200 crore at all times. Out of these ₹200 crore, ₹15 crore should be in the form of gold and the remaining ₹85 crore in foreign currency. After holding such assets, RBI prints notes under the RBI Act, 1934, according to the needs of the Indian economy. A promissory note is also written on these notes by the RBI Governor, which is printed only to ensure that RBI has kept gold equivalent to the currency value in its possession. This promissory note assures the note holder that in any situation like war, national calamity, inflation, and depression, RBI will not be a non-payer or defaulter. For example, if someone has a currency note of ₹500, they do not need to worry about the exchange value of that note. Because in all circumstances, RBI is liable to pay them gold or goods equivalent to the value of ₹500. Now, suppose RBI prints more Indian currency notes than its gold assets and foreign cash reserves, on which the RBI Governor's promise is also printed. But when India does not have reserves equal to the value of those notes, RBI will not be able to pay the public the value of those notes in any kind of economic crisis. Not only this, if RBI prints more notes than its gold assets and foreign reserves, the value of the Indian Rupee will also fall in the global market, i.e., decrease. This is because, due to the lack of reserves equivalent to Indian notes, it will be difficult for the government to maintain people's faith in the Indian currency, due to which the foundation of the Indian economy will be shaken. If we talk about the decrease in currency value, we get the most accurate example from the economic situation of Venezuela. Venezuela has been going through a monetary crisis for the past several years. Experts believe that this crisis started due to heavy money printing, in which currency notes were being printed in value greater than Venezuela's assets. Today, the condition of this country is such that currency notes up to ₹1 lakh are printed in Venezuela, but their value is almost zero. This is why, to maintain the internal value of currency, RBI and the Indian government maintain a balance with foreign reserves. Now let's move towards the next reason and try to understand inflation from the perspective of money printing. Let it be known that maintaining economic stability is also one of the functions of RBI. Friends, along with creating the value of the rupee, RBI also has to maintain its value. For which inflation is the biggest obstacle. Inflation means the increase in prices of goods and services in the economy. While there are many reasons for inflation, a major reason among them is the demand and supply gap, i.e., the demand for any good being more than its supply. In fact, the demand for goods and services also increases for many reasons. One of them is that people have more money to spend, which is called purchasing power in economic terms. If the demand for products increases, but their supply does not increase at that rate, then the prices of products are increased to reduce people's purchasing power and the demand-supply gap, which causes inflation in the economy. If inflation is present in an economy for some time, it does not matter. But when inflation affects people's basic needs, the economy can be severely affected. Now, if RBI distributes a large amount of notes among people through unlimited printing and increases their purchasing power, it is natural that the demand for all kinds of products in the country will increase. If the increasing demand is not balanced by the supply system, inflation will increase, as a result of which people's purchasing capacity will gradually decrease. Well, if notes continue to be distributed unlimitedly, inflation will increase to such an extent that something selling for a few rupees will now be available at 10 times or 100 times the price. From basic needs to luxury items, prices will cross the limit. Something similar drastic step was taken by the African country Zimbabwe to improve its economy. Economic issues have been ongoing in Zimbabwe since the 1990s. To find a solution, the government of this country resorted to unlimited money printing for circulation in the market. But due to continuous printing, inflation in this country reached the seventh heaven, and to reduce inflation, the government started printing unlimited money. Even notes of millions of dollars were printed in this country, after which the economy of this country reached the hyperinflation mode from inflation. The value of currency in this country fell so much, products became so expensive that people used to go to the market with bundles of notes to buy a packet of bread. You will be surprised to know that according to 2008 statistics, Zimbabwe's inflation rate was expected to be 79.6 billion. Imagining this rate and understanding it is beyond our imagination. And to avoid such economic hardship, RBI does not print unlimited money in India. Rather, it circulates limited money in the Indian economic market in collaboration with the Indian government. Conclusion. So friends, this was an interesting discussion related to RBI and unlimited currency printing. Why can't RBI print unlimited currency? Such thoughts must have crossed your mind many times, and it is natural for them to arise. Because we all must have thought at some point that why doesn't RBI print more notes and distribute them among the citizens of the country, so that poverty is eradicated forever? But now you must have understood that if RBI starts printing unlimited currency, the condition of our country's economy will become as dire as Venezuela and Zimbabwe. If you have any other questions related to the economy, please share them with us in the comment section. We will try our best to answer them in our videos. Study IQ IAS Your Selection Our Mission.