India: 4th largest Forex Reserves holder

India’s forex reserves crossed $600 mark for the first time and as on June 4, it stood at $605 billion. With this, India equals Russia as the fourth largest reserve holder worldwide.

Highlights

  • India’s forex reserve was $605.008 billion while for Russia it was $605.2 billion.
  • It took a year for reserves to rise by $100 billion.
  • Huge forex reserves have improved India’s import cover substantially.
  • By December 2020, foreign exchange reserves cover of imports increased to 18.6 months.

Foreign exchange or Forex reserves

Forex are assets on reserves which are held by central bank in foreign currencies. It includes bonds, treasury bills and other government securities. Most of the foreign exchange reserves are held in U.S. dollars. These reserves serve several purposes and ensure that central bank has backup funds in case national currency rapidly becomes insolvent or devaluate. India’s Forex Reserves include- Gold, Foreign Currency Assets, Special Drawing Rights and Reserve position with International Monetary Fund (IMF).

Foreign Currency Assets

Assets which are valued on the basis of currency other than own currency of any country are called as foreign currency assets. It is the largest component of forex reserve and is expressed in dollar terms.

Special Drawing Rights

These international reserve assets are created by International Monetary Fund (IMF) in 1969.  These are neither a currency nor a claim on IMF, but a potential claim on freely usable currencies of members of IMF.

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