The Indian Monetary System is the framework that governs the supply and management of money in India. It is a crucial component of the country's economy, influencing everything from inflation and interest rates to economic growth and financial stability. The system is managed by the Reserve Bank of India (RBI), which acts as the central bank of the country. Established in 1935, the RBI oversees the issuance and regulation of currency, the management of foreign exchange, and the implementation of monetary policy. The Indian monetary system has evolved significantly over the years, adapting to the changing needs of the economy and incorporating global best practices to ensure its robustness and efficiency.

Phase I (1786–1947): The Colonial Period

1.Early Banks

i.Formation of Early Banks: The history of banking in India dates back to the late 18th century with the establishment of the General Bank of India in 1786 and the Bank of Hindustan in 1790. However, both banks failed to sustain operations for long.

ii.Presidency Banks: The three Presidency Banks were established in the early 19th century under British rule: Bank of Bengal (1806), Bank of Bombay (1840), and Bank of Madras (1843). These banks were initially set up to cater to the needs of European businesses and played a significant role in the colonial economy. By 1876, these banks had issued a significant amount of banknotes and conducted a majority of government banking transactions.

2.Imperial Bank of India

i.Establishment: In 1921, the three Presidency Banks were amalgamated to form the Imperial Bank of India, which was a semi-government entity. The Imperial Bank served as both a commercial bank and a quasi-central bank until the establishment of the Reserve Bank of India (RBI) in 1935.