Foreign Exchange Reserve

Foreign Exchange Reserve Latest News

In the sharpest jump in over two years, the country’s foreign exchange reserves increased by $15.267 billion to $653.966 billion recently.

About Foreign Exchange Reserve

• Foreign Exchange Reserves (also called Forex Reserves) are foreign currency assets held by the central banks of countries.
• These assets include foreign marketable securities, monetary gold, special drawing rights (SDRs), and reserve position in the IMF.
• These are denominated and expressed in the US dollar, which is the international numeraire for the purpose.
• China is the largest foreign exchange reserve holder in the world.
• RBI is the custodian of the foreign exchange reserves in India.
• India’s foreign exchange reserves comprise of;
  • Foreign currency assets (FCAs): These are maintained in currencies like the US dollar, euro, pound sterling, Australian dollar, and Japanese yen.
  • Gold
  • SDR (Special Drawing Rights): This is the reserve currency with the IMF.
  • RTP (Reserve Tranche Position): This is the reserve capital with the IMF.
• The biggest contributor to India’s Forex reserves is foreign currency assets, followed by gold.

Foreign Exchange Reserve Purpose

• They ensure that the country has sufficient liquidity to carry out foreign exchange transactions or cope with a balance of payments deficit. 
• A central bank can use its foreign exchange reserves (foreign currencies) to intervene in Forex markets and influence its currency’s exchange rate.
• If the value of the Rupee decreases due to an increase in the demand for the foreign currency, then RBI sells the dollar in the Indian money market so that depreciation of the Indian currency can be checked.
• A country with a good stock of forex has a good image at the international level because the trading countries can be sure about their payments.

Foreign Exchange Reserve FAQs

Q1. Who has the largest foreign exchange reserves?

Ans. China is the largest foreign exchange reserve holder in the world.

Q2. Who is the custodian of the foreign exchange reserves in India?

Ans. Reserve Bank of India (RBI)

Q3. What constitutes the largest share of India’s Forex reserves?

Ans. The biggest contributor to India’s Forex reserves is foreign currency assets, followed by gold.

Source: TH