Question

The method of note issue, the central bank is mandatory by law to maintain a permanent percentage adjacent to issuance of notes is known as

• A. Fixed Reserve System
• B. Floating Reserve System
• C. Proportional Reserve System
• D. Variable Reserve System

Answer 1

Answer:

C. Proportional Reserve System

Proportional Reserve System:

• Under this method of note issue, the central bank is mandatory by law to maintain a permanent percentage adjacent to issuance of notes.
• It is often called percentage system.
• As per this system, not less than 40% of the total volume of notes issued by RBI is to be covered by gold coin, bullion and foreign securities.
• The balance of 60% is backed by rupee coins, Indian government securities and eligible commercial bills.
• The volume of gold coins and bullion held by RBI should not be less than 40 crores.
• India follows till 1956
• Introduced in Germany, USA