Q.)The RBI is responsible for maintaining the value of the Rupee outside the country. Discuss.

Why this Question:

Important static part

Key demand of the question:

How RBI manages monetary policy.


Discuss- back up the answer by carefully selected evidence to make a case for and against an argument, or point out the advantages and disadvantages of the given context and finally arrive at a conclusion.


Introduce by defining role and functions of RBI


In the first part, highlight the role of Rupee valuation.

In the next part, highlight the need for regulating it due to the various challenges the Indian rupee faces.


Conclude with a way forward

Model Answer

RBI is an institution of national importance and the pillar of the surging Indian economy. It is a member of the International Monetary Fund (IMF).  The concept of Reserve Bank of India was based on the strategies formulated by Dr. Ambedkar in his book named “The Problem of the Rupee – Its origin and its solution”. This central banking institution was established based on the suggestions of the “Royal Commission on Indian Currency & Finance” in 1926. This commission was also known as Hilton Young Commission.

In 1949, the Reserve Bank of India was nationalized and became a member bank of the Asian Clearing Union. RBI regulates the credit and currency system in India. The chief objectives of the RBI are to sustain the confidence of the public in the system, protect the interests of the depositors, and offer cost-effective banking services like cooperative banking and commercial banking to the people.

Reserve Bank of India works as:

Monetary Authority

  • Implementation of monetary policies.
  • Monitoring the monetary policies
  • Ensuring price stability in the country considering the economic growth of the country

Also, read about the Monetary Policy Committee (MPC) and know more about this six-member committee.

Regulator and Administrator of the Financial System

  • The RBI determines the comprehensive parameters of banking operations.
  • These methods are responsible for the functioning of the country’s banking and financial system. Methods such as:
    • License issuing
    • Liquidity of assets
    • Bank mergers
    • Branch expansion, etc.

Managing Foreign Exchange

  • RBI manages the FOREX Reserves of India.
  • It is responsible for maintaining the value of the Rupee outside the country. 
  • It aids foreign trade payment. 

Issuer of currency

  • The Reserve Bank of India is responsible for providing the public with a sufficient supply of currency notes and coins. 
  • The quality of currency notes and coins is also taken care of by the RBI.
  • RBI is in charge of issuing and exchanging of currency and coins. 
  • Also, the destruction of currency and coins that are not fit for circulation.

Promotional functions that support national objectives are organized by RBI that encourage rural and agricultural economic development. The RBI will regularly issue directives to the commercial banks to lend loans to small-scale industrial units.