Skip to main content
Sujai Adithya
Business Development and Banking & Financial Services Expert
Asked a question last year

What are the advantages and disadvantages of the Minimum Reserve System? Also, what is the RBI Act of 1935?

Where am I?

In Safejob Community you can ask and answer questions and share your experience with others!

Sujai Adithya
Business Development and Banking & Financial Services Expert

RBI Act of 1935:

The issue of currency note is under the RBI Act of 1935. There are a number of amendments made under this act. The present currency note cannot be issued by the RBI in unlimited amount as it is an inconvertible paper note. Under the current provisions, additional currency can be issued by the RBI without maintaining the additional reserves.

Advantages:

  • This method is elastic in nature.
  • Increase in issue of notes does not require increase in the minimum reserves.
  • This method is reliable during financial crisis and emergencies like war, earth quake and floods.
  • This method is suitable for poor and developing countries.

Disadvantages:

  • There is a danger of over issue thereby increasing the money supply which brings inflation.
  • The effective use of monetary policy measures can show good result to control the inflation.