Discussion
Which among the following is correct regarding currency notes issued in India?
Answer: C
Correct answer: Total value of currency notes constitutes the liabilities of Reserve Bank of India
A banknote is a promise to pay, so it is a liability of the institution making the promise. Notes issued therefore appear on the liabilities side of the Reserve Bank's balance sheet, in the Issue Department.
Against them the Bank holds assets - gold, foreign securities, rupee securities - which back the issue, and that is where the assets side lies. The Central Government guarantees the notes under Section 26 but does not carry them as its own liability, which is what separates the keyed option from the one naming the Government.
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