The tussle between RBI and government officials came in public limelight when government sought to transfer the surplus 3.6 lakh crore reserves of central bank. Finance Ministry alleged that existing economic capital framework- which governs the RBI’s capital requirements and terms for transfer of its reserves to the government - is based on a very conservative assessment of risk by the central bank.
In wake of government’s threat to impose Section 7 of RBI Act which states- “The Central Government may from time to time give such directions to the Bank as it may, after consultation with the Governor of the Bank, consider necessary in the public interest”, RBI setup an expert committee under Bimal Jalan to examine the central banks Economic Capital Framework(ECF).
Aim of Keeping Reserves
Reserve Bank of India Act 1934, conveys main aim of RBI is- “to regulate the issue of bank notes as well as keeping of reserves with a view to secure monetary stability”.
The current debate of RBI revolves around two reserves, namely- “Currency & Gold Reevaluation Account (CGRA) and Contingency Fund”. CGRA represents value of gold and foreign currency that RBI holds on behalf of India. Variations in CGRA simply represents the changing market value of these assets). The Contingency Fund of India however is meant to meet the unexpected contingencies that arise from RBI’s monetary policy and exchange rate operations. In both cases, RBI intervenes in the relevant markets to adjust liquidity or prevent large fluctuations in currency value.
The objective of these reserves are to cover an economic situation when,
Prior Cases of Conflict between RBI and Government
Effect of Transfer of Reserves by RBI to Government
|
Way Forward