India’s Forex Reserve
India’s foreign exchange (forex) reserves surged by $3.883 billion to touch a lifetime high of $541.431 billion in the week ended August 28, Reserve Bank of India (RBI) data showed on Friday (September 4).
- India’s forex reserves had crossed $500 billion for the first time ever in the week ended June 5, 2020, hitting what was then the all-time high of $501.7 billion.
Foreign Exchange Reserves
- These are assets held on reserve by a central bank in foreign currencies, which can include bonds, treasury bills and other government securities.
- Most foreign exchange reserves are held in U.S. dollars.
- These assets are held to ensure that the central bank has backup funds if the national currency rapidly devalues or becomes altogether insolvent.
- It is an important component of the Balance of Payment and an essential element in the analysis of an economy’s external position.
Forex reserves includes
- Foreign Currency Assets(FCA)
- Gold reserves
- Special Drawing Rights
- Reserve position with the International Monetary Fund (IMF)
- Assets that are valued based on a currency other than the country’s own currency.
- It is the largest component of the forex reserve.
- It is expressed in dollar terms.
Special drawing rights (SDR)
- It is an international reserve asset, created by the IMF in 1969 to supplement its member countries’ official reserves.
- It is neither a currency nor a claim on the IMF.
- The value of the SDR is calculated from a weighted basket of major currencies, including the U.S. Dollar, the Euro, Japanese Yen, Chinese Yuan, and British Pound.
Reserve position with the International Monetary Fund (IMF)
- It implies a portion of the required quota of currency each member country must provide to the International Monetary Fund (IMF) that can be utilized for its own purposes.
- It is basically an emergency account that IMF members can access at any time without agreeing to conditions or paying a service fee.
- India’s FOREX is governed by RBI under RBI Act,1934.
- The level of foreign exchange reserves is largely the outcome of the RBI’s intervention in the foreign exchange market.