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RBI & Money Mechanics?

posted Feb 28, 2012, 1:46 PM by Rishi Gangoly   [ updated Feb 28, 2012, 1:47 PM ]
What the Zeitgeist Addendum Movie showed was with respect to the United States of the FRACTIONAL RESERVE BANKING procedure of money expansion employed by the COMMERCIAL BANKS...a recurrent question that I face while sharing this information with people is that-- Is the same procedure employed in the commercial banks of INDIA as well...for if the same happens,THEIR rationale is that only then can they find reason enough to be concerned & either join the movement or spread the awareness... otherwise INDIA is out of the context.

Also, the document entitled MODERN MONEY MECHANICS issued by the Federal Reserve Bank of USA (PDF file of which is available in the internet) is a workbook on BANK RESERVES and DEPOSIT other words it deals with how money is created, deposited and BASICALLY the system works. It is NOT a document on the FUNCTIONS & WORKING of the Federal Reserve. The Reserve Bank of India publishes a document on the FUNCTIONS & WORKING of the institution (again PDF file of which is there in the website ) but I did not find any document like MONEY MECHANICS in its website. RBI doesn't publish any of such kind.

So how to go about it?


The workings of RBI are not very different from the workings of the US Federal Reserve. Although we don't have detailed information on all the functions of RBI, essentially every "Central Bank" works in a similar way. In that sense, RBI is also a Central Bank. Money is debt in India too. RBI may not have an equivalent to Modern Money Mechanics, but the RBI document available on the website (as pdf) does clearly state that all money is "legal tender" to be used anywhere in India. Which means if you go to your bank tomorrow with Rs. 5000 in hard cash and tell them you want to exchange it for gold, they will not do it. 

Because most of our money is 'fiat', i.e. backed by nothing of value. As a Minimum Reserve System, RBI is required to have some fraction of its reserves in gold form, but the other portions of its reserves are required to be 'foreign securities', which we know are largely fiat. 

So how does US economy affect us? Sure, there are differences in some of the policies of our government versus the American government, which is why our economy is not in total shambles yet. But pretty much all world economies are connected. As of 1946 India became a member of IMF (International Monetary Fund), which means it is already plugged into the system of global debt control. Today we will need more than 55% of our GDP to pay off our national debt. At the moment, the Indian debt is much lower than the US debt. But the way things are going, India will not be far behind from the severe deficit that US, UK and most of Europe is already facing. 

Before long, most of this map will be red

Clearly, India is not and cannot be out of context, unless it gets off the world map entirely!