The Reserve Bank of India or RBI, as we all know, is the father of all banks and prints Indian currencies. That’s how I had my notion too until I came across a News reporting from a leading new channel. The small documented film changed the way I viewed RBI’s role in Indian economy. It gave me much needed answers and the same I am going to share with you all in this article.

Facts About Indian Currency

As per RBI Act 1937 Section 22, It can print Currency notes up to 10000 Denomination. If a requirement arises to print higher denomination of currency, the amendment has to take place in RBI Act 1937 Section 22. The currency notes are printed at RBI run printing press. These printing presses are located at Nasik (Maharashtra), Dewas (Madhya Pradesh), Mysore (Karnataka) and Salboni (West Bengal). Each currency notes have Governor’s signature on it with a statement that “I promise to pay the bearer sum of XXX rupees”.And once the currency is distributed in the public, it becomes RBI’s liability.

Printing of Fresh Currencies

RBI plans for fresh printing of currencies at the start of each year. The amount of new currencies to be printed depends on the data analysis received from 19 regional offices through out India. The analysis concludes how much of the currencies need to be replaced and how much new currencies need to be added.

Why Not Print Countless Currency to Support Indian Poverty?

Several of us might be asking ourselves why doesn’t the Govt. print countless currencies to support Indian Poverty. Definitely it does sound logical, isn’t it? Or maybe not? Let’s understand this by an example on why Govt. cannot print countless currencies.

If suppose we have enough money to buy anything that we wish, then this will create demand over the supply. So with the limited supply, the prices for the products will shoot up and this will cause inflation to rise. And over printing of currency against the asset value in the form of Gold Reserve and Foreign currency reserve will further devalue the currency in the world market.
So, it is very important for RBI to maintain the balance between the currency notes available and their assets value. This helps in maintaining rupee value against foreign currencies and keep inflation under control.

How Does RBI make Profit?

RBI makes profit by investing money on Open Market Operations. RBI purchases bonds from several banks and pays money for it. They earn Interest out of the Bonds and also profits from the rise of Bond’s price. RBI also lends money to Indian banks at an Interest rate which we call as “Repo Rate”.

On the other hand, RBI also invests money in buying foreign currency to create a reserve and that is further used in the need of import payments. There are several such operations that RBI participates in and makes profit out of them.

RBI pays a major part of its earning to Indian Govt in the form of dividends. This helps Govt. to run the expenses in the country. RBI inevitably plays a very important role in maintaining price stability and propelling growth of the Indian Economy. Hail RBI!