(i) Banker to the government: The government maintains an account in the central bank (Reserve Bank of India), just as individuals have in commercial banks. All incomes of the government are deposited and expenses are incurred out of this account. Reserve Bank of India keeps track of all the inflows and outflows. The government also borrows from the central bank (RBI) when necessary.
(ii) Issue of currency notes: The Reserve Bank of India enjoys the monopoly to issue paper notes which are the legal tender and a part of the money supply. In order to prevent the misuse of this power, the RBI has to follow certain principles. It has to keep a certain amount of gold and foreign securities against the issue of notes.
