Module: | MODULE A: INTERNATIONAL BANKING
Q177: Consider the following statements regarding the statutory powers of the Reserve Bank of India concerning foreign exchange:
1. The Reserve Bank of India derives its primary powers to regulate foreign exchange transactions from the Foreign Exchange Management Act of 1999.
2. The Reserve Bank of India acts as the sole custodian of the foreign exchange reserves of the country.
3. The Reserve Bank of India directly issues all import and export licenses to private traders in India.
Which of the statements given above is or are correct?
2. The Reserve Bank of India acts as the sole custodian of the foreign exchange reserves of the country.
3. The Reserve Bank of India directly issues all import and export licenses to private traders in India.
Which of the statements given above is or are correct?
✅ Correct Answer: A
🎯 Quick Answer:
Option A is correct because only statements 1 and 2 are accurate.Structural Breakdown: Under the Foreign Exchange Management Act of 1999, the Reserve Bank of India is empowered to make regulations and rules governing how foreign exchange is bought, sold, and held.
It also manages the sovereign foreign exchange reserves.
Statement 3 is incorrect because the issuance of import and export licenses is the mandate of the Directorate General of Foreign Trade under the Ministry of Commerce and Industry, not the Reserve Bank of India.
Historical Context: The role shifted significantly in the year 2000 when the Foreign Exchange Regulation Act was replaced by the Foreign Exchange Management Act, moving the central bank's focus from conservation of foreign exchange to the active management and development of the foreign exchange market.
Causal Reasoning: The separation of powers ensures that the central bank focuses purely on monetary stability and capital flow management, while the Ministry of Commerce handles the physical trade policy and licensing.