‘Reserve Bank of India acts as a controller of credit and custodian

1.	‘Reserve Bank of India acts as a controller of credit and custodian of foreign exchange reserves’, Explain.
Answer» Monetary functions (Monetary responsibilities): Controller of credit: RBI controls credit creation of the banks by various monetary policy tools like Repo rate, Reverse repo rate, SLR, CRR etc. Custodian of foreign exchange reserves: RBI holds all the important foreign exchange reserves/currencies like U.S dollars, British pounds, gold, etc. in its custody. RBI maintains these reserves with them so as to maintain the value of rupee as compared to other currencies under the fixed exchange rate process of IMF (International Monetary Fund). Fixed exchange rate regime is when the value of a country’s currency, in relation to the value of other currencies, is maintained at a fixed conversion rate by the central bank of a country. RBI maintains the value of rupee in the world economy by buying and selling these foreign exchange reserves in the open market.

‘Reserve Bank of India acts as a controller of credit and custodian of foreign exchange reserves’, Explain.

Answer»

Monetary functions (Monetary responsibilities):

Controller of credit:

RBI controls credit creation of the banks by various monetary policy tools like Repo rate, Reverse repo rate, SLR, CRR etc.

Custodian of foreign exchange reserves:

RBI holds all the important foreign exchange reserves/currencies like U.S dollars, British pounds, gold, etc. in its custody.
RBI maintains these reserves with them so as to maintain the value of rupee as compared to other currencies under the fixed exchange rate process of IMF (International Monetary Fund).
Fixed exchange rate regime is when the value of a country’s currency, in relation to the value of other currencies, is maintained at a fixed conversion rate by the central bank of a country.
RBI maintains the value of rupee in the world economy by buying and selling these foreign exchange reserves in the open market.