In 1927 a Bill in the Legislative Council was moved to establish the Reserve Bank of India. The Act prescribed the issue of notes of the denominations of Rupees 5, 10, 50, 100, 500, 1000 and 10000.
The Reserve Bank began its operations by taking over from the Government the functions hitherto performed by the controller of Currency and from the Imperial Bank of India the Management of Government accounts and public debts. The existing Currency offices in Calcutta, Bombay, Madras, Rangoon, Karachi, Lahore and Kanpur became the branches of the Issue Department of the Bank. The bank was entrusted with the sole right to issue bank notes in British India.
The Reserve Bank of India became responsible for the issue, cancellation and regulation of currency and for maintaining the necessary resources.Under Section 22 of the Reserve Bank of India Act, the bank was empowered to continue to issue existing currency notes of the Government of India till its own distinctive notes were ready for use. The issue of the Government of India notes, continued till January 1938.
The Central Board of Bank, considered the issue of new notes of its own at its meeting on April 25, 1935. It was then resolved to retain the generalsize, appearance and design of the existing Government Currency notes subject to appropriate modifications, namely, the substitution of the words GOVERNMENT OF INDIA and the super-inscription of the words GUARANTEED BY THE GOVERNOR GENERAL IN COUNCIL or alternatively GUARANTEED BY THE GOVERNMENT OF INDIA. The Guarantee was on the insistance of King George V as his portrait was used by a Private Bank.
The notes were to be signed on behalf of the bank by the Governor. It was also decided to discontinue the notes of Rupees 50 and 500. The first Reserve Bank of India notes were issued with the portrait of King George VI of Rupees 5 in January 1938.
The Government of India did not entrust the Reserve Bank to issue the One Rupee Note and decided to hold the issue of the notes of this denomination into its own hands. These notes were treated in the Government accounts at par with the metallic rupee coins. Accordingly, these notes that were printed at Nasik, had the signature of Sir C.E. Jones, the then Secretary of Finance Department; he signed the notes on behalf of Government of India. These notes were ready by the beginning of July 1941, but they were issued only on December 10, 1944, when the stock of the England printed King George V notes exhausted. They were withdrawn from circulation on October 27, 1957. From that date they ceased to be legal tender.
The Reserve Bank decided to issue notes of 2 Rupees. The issue of a note of any new denomination was not possible, unless the Reserve Bank of India Act was amended. Consequently, it was amended and the notes of 2 Rupees were issued on March 3, 1943.
The first Governor, Sir Osborne Smith did not sign any banknotes. The first issues were signed by Sir J.B. Taylor, who held the office of the Governor of the bank from July 1, 1937.
In 1946 the high denomination notes of 1000 and 10000 were demonetised to curb unaccounted wealth.
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