Forex Reserves of India are rising

The Forex Reserves of India are increasing and are to hit 500 billion USD soon. In May 2020, the Indian Forex Reserves touched an all time high of 493 billion USD.

What is Foreign Exchange Reserve?

The Foreign Exchange Reserves are the reserve assets that are held by the central bank in foreign currencies. It is used to back the liabilities faced by a currency due to the influence of monetary policy.

Why are the Forex Reserves rising?

The Forex Reserves of India are increasing mainly due to fall in crude oil prices. Also, the rise is because of the increase in investment in Foreign Direct Investments (FDI) and Foreign Portfolio Investors (FPI).

Significance

The Forex Reserves are held by the GoI to maintain liquidity in the country. It also helps to absorb shocks where access to borrowing is curtailed. The Forex Reserves are an important component of Balance of Payment and also an essential element to analyze the external position of the economy.

Components of Foreign Reserves of India

The Foreign Exchange Reserve of India comprises of the following

  • SDR (Special Drawing Rights) in International Monetary Fund. The SDR is the reserve Currency with IMF
  • Gold
  • RTP: RTP is Reserve Tranche Position in International Monetary Fund. It is the reserve capital with International Monetary Fund.

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