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:

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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