FOREX RESERVES

  • According to recent data from Reserve bank of india (RBI), India’s Foreign Exchange (Forex) reserves posted a decline of USD 678 million during the week ended 21st January 2022 to reach USD 634.287 billion.
  • The slip in the reserves was on account of a drop in the Foreign Currency Assets (FCA), a vital component of the overall reserves. FCA declined by USD 1.155 billion to USD 569.582 billion in the reporting week.
  • Gold reserves saw an increase of USD 567 million to USD 40.337 billion in the reported week.
  • The Special Drawing Rights (SDRs) with the International Monetary Fund (IMF) fell USD 68 million to USD 19.152 billion.

Important points:

  • 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:

  1. Foreign Currency Assets
  2. Gold reserves
  3. Special Drawing Rights
  4. 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.

Foreign Currency Assets

  • FCAs are assets that are valued based on a currency other than the country’s own currency.
  • FCA is the largest component of the forex reserve. It is expressed in dollar terms.
  • The FCAs include the effect of appreciation or depreciation of non-US units like the euro, pound and yen held in the foreign exchange reserves.

SOURCE: THE HINDU,THE ECONOMIC TIMES,MINT

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