What Is Minimum Reserve System? What Are The Advantages And Disadvantages.

4 Answers

Simra Mehar Profile
Simra Mehar answered
Minimum reserve system
The central bank keeps a minimum reserve of gold under the law. A maximum limit of note is not fixed. After keeping the reserve any amount of money can be issued. Additional issue of notes does not require further metallic reserves.
• This method is use in Pakistan after December 1965.
• India is also applying it since 1957.
• South Africa has adopted in 1930.
• Holland has been issuing notes under this method for so many years

• This method is elastic.
• Expansion and contraction can be made at any time.
• It is an economical system because new issue of notes does not demand increase in the gold reserve.
• This method is reliable during financial crisis and emergencies like war, earth quake and floods.
• This method is suitable for poor and developing countries.

There is a danger of over issue which brings inflation. The effective use of monetary policy measures can show good result to control the inflation.
Anonymous Profile
Anonymous answered
According to minimum reserve system  the central bank is required to keep only a minimum amount of reserves in the fom of gold and foriegn exchange securities.the central bank can expande the nots issuance according to volume of business activites with out backing of gold.
The level of currncy backing by gold is fixed at Rs: 1200 million in pakistan.
Praveen Mishra Profile
Praveen Mishra answered
Minimum Reserve System is presently the policy of Indian Govt to issue currency notes.The task is assigned to The Issue Dept of RBI.Under it the dept. May issue any amount of notes,the only condition being that it always maintains reserves consisting of a minimum of Gold and Foreign exchange to the extent of Rs 200 crore,of which gold should be to the value of Rs 115 crore.Thus the policy is inflationary in nature.
Earlier the assets of the issue dept. Were held on a proportional system:
(I)at least 40% of total assets consists of gold coins,gold bullions or Sterling securities of which gold value should be at least Rs 40 crore,and
(ii)Remaining 60% of assets should be in rupee coins,rupee securities of GOI and eligible bills of exchange payable in India

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