According to the recent data from the Reserve Bank of India, India’s Foreign Exchange (Forex) Reserves surged by $ 5 billion to $ 609 billion in the week ended 25th June, 2021.
- Increase in the Foreign Currency Assets (FCA) is the major component of overall reserves.
Changes in forex reserves holdings:
- FCA rose by $ 4.7 billion to $ 566 billion.
- Gold reserves rose by $ 365 million to $ 36.296 billion.
- The special drawing rights (SDRs) with the International Monetary Fund (IMF) remained unchanged at $1.498 billion.
- The country’s reserve position with the IMF increased marginally by $ 1 million to $ 4.965 billion in the week.
Foreign Exchange Reserves:
- Foreign exchange reserves are assets held on reserve by a central bank in foreign currencies, which can include bonds, treasury bills and other government securities.
- It needs to be noted that most foreign exchange reserves are held in US dollars.
India’s Forex Reserve include:
- Foreign Currency Assets
- Gold reserves
- Special Drawing Rights
- Reserve position with the International Monetary Fund (IMF).
Objectives of Holding Forex Reserves:
- Supporting and maintaining confidence in the policies for monetary and exchange rate management.
- Provides the capacity to intervene in support of the national or union currency.
- Limits external vulnerability by maintaining foreign currency liquidity to absorb shocks during times of crisis or when access to borrowing is curtailed.