75 years of Reserve Bank of India

Last Updated: Apr 02, 2011, 17:00 PM IST

Rd. Alexander

The Reserve Bank of India, the central banking institution of India that controls the monetary policy of the country—the rupee, completed 75 years of service to the nation on 1st of April, 2011. Established on this day in 1935 in accordance with the Reserve Bank of India Act 1934, the RBI has played an important role in the development of the government especially in the financial and economic development of the country.

Set up with its central office at Kolkata (Calcutta then), it was moved permanently to Mumbai (Bombay then) in 1937; this is where the Governor of the Bank sits and all monetary policies are formulated. The RBI was privately owned at its initial stage but later was handed over to the Government of India since its nationalisation in 1949.

The RBI was established following the economic troubles that cropped up after the First World War and the need for financial institutions to regulate the currency, monetary policy and credit system in the country. Earlier in 1926, the Hilton-Young Commission had submitted a report regarding the formation of the Central Bank but it was not until 1935 that the RBI was established under the recommendation of the commission. Since then, the RBI has been the central monetary policy maker of the country with its Head (Governor) and board members from time to time.

As the Central Bank of the country, the RBI’s main function and power is the regulatory power it has over the Indian currency. Its preamble clearly describes the function of the Reserve Bank as:

"...to regulate the issue of Bank Notes and keeping of reserves with a view to securing monetary stability in India and generally to operate the currency and credit system of the country to its advantage."

Hence, in accordance with its preamble, the RBI has monetary authority in the country and decides all policies related to Indian currency. It also acts at the bank of the national and state government. The bank also controls the Foreign Exchange policies of the country to facilitate foreign exchange market in India, external trade and payment. The RBI is also the issuer of Indian currency and decides on issues, exchange or even destroying of currency that it deems unfit for circulation.

Some of the main tools controlled by the Central Bank are Bank Rate, Cash Reserve Requirement and Statutory Liquidity Requirement.

At the international level, the RBI is regarded highly and seen at par with various international financial institutions such as Federal Reserve of the United States or the Central Bank of the Republic of China (also known as the Central Bank of China). The RBI is also a bank member of Asian Clearing Union (ACU), an establishment set up for regional cooperation and settlement of monetary transaction and payment amongst the members. ACU comprises central banks of nine countries namely Bangladesh, Bhutan, Iran, India, Maldives, Nepal, Pakistan, Sri Lanka, and Myanmar.

It is interesting to note that the RBI acted as the central bank of Myammar until its occupation by the Japanese and later till 1947. It also served as the central bank of Pakistan until June of 1948 when the State Bank of Pakistan began its full operation.

And over the last 75 years, the RBI has regulated the Indian currency from time to time as required and guided the Rupee through the years making India one of the fasting growing economies in the world today. If India is considered a global financial power, a fast growing economy of the world, there is no denying that the Central Bank of the country, the RBI has played a vital role.