FOREIGN
EXCHANGE RESERVES OF INDIA - ECONOMY
News:
Forex reserves jump to
$622.469 billion
What's
in the news?
●
India's forex reserves jumped by $5.736
billion to $622.469 billion
according to the report of the Reserve Bank.
Key
takeaways:
●
In October 2021, the country's forex kitty
had reached an all-time high of USD 645 billion.
●
The reserves took a hit as the central
bank deployed them to defend the rupee amid pressures caused majorly by global
developments since last year.
Foreign
Reserves:
●
Foreign exchange reserves are the foreign currencies held by a country's
central bank. Foreign exchange reserves take the form of banknotes,
deposits, bonds, treasury bills, and other government securities.
●
Foreign exchange reserves are a nation’s backup funds in case of an
emergency, such as a rapid devaluation of its currency.
●
Most reserves are held in U.S. dollars,
the global currency.
Components
of Forex Reserves:
The four components of forex reserves are as follows.
●
Foreign
Currency Assets (FCAs) - $553.31 billion.
●
Gold
Reserves - $48.088 billion.
●
Special
Drawing Rights (SDRs) - $18.19 billion.
●
Reserve
position with the International Monetary Fund (IMF)
- $4.86 billion.
Countries
with Forex Reserves:
Importance
of Forex for a Country:
●
Countries use their foreign exchange
reserves to keep the value of their currencies at a fixed rate.
●
Maintain liquidity in case of an economic crisis.
●
Provide confidence to the foreign investors.
●
They reduce
the likelihood of balance-of-payments crises, help preserve economic and
financial stability against pressures on exchange rates and disorderly market
conditions, and create space for policy autonomy.
●
To meet
its external obligations. These include international payment obligations,
including sovereign and commercial debts. They also include financing of
imports and the ability to absorb any unexpected capital movements.