India’s Foreign Kitty Jumps to Fresh Time High at 689.24bn [Current Affairs]

The Reserve Bank of India (RBI) announced that India’s forex reserves jumped USD 5.248 billion to a new all-time high of USD 689.235 billion till 6th September, 2024.

What are Forex Reserves?

Forex reserves or foreign exchange reserves are assets that are held by a nation’s central bank or monetary authority. It is generally held in reserve currencies, usually the US Dollar and to a lesser degree the Euro, Japanese Yen, and Pound Sterling. It is used to back its liabilities.

Purpose

• They are used to back liabilities on their own issued currency, support the exchange rate and set monetary policy.
• To ensure that RBI has backup funds if their national currency rapidly devalues or becomes altogether insolvent.
• If the value of the Rupee decreases due to an increase in the demand of 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.
• A good forex reserve helps in attracting foreign trade and earns a good reputation with trading partners.

Components of India’s foreign exchange reserves

• 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. (The SDR is an international reserve asset. The SDR is not a currency, but its value is based on a basket of five currencies like the US dollar, the euro, the Chinese renminbi, the Japanese yen, and the British pound sterling.)
• RTP (Reserve Tranche Position): This is the reserve capital with the IMF.(Each member of the IMF is assigned a quota (membership fee). A country’s Reserve Tranche Position (RTP) is the difference between the IMF’s holdings of that country’s currency and the country’s IMF-designated quota.)

Numbers by RBI

• A major component of the reserves, increased by $5.107 billion to $604.144 billion,
• Gold reserves increased by $129 million to $61.988 billion.
• The Special Drawing Rights (SDRs) were up by $4 million to $18.472 billion.
• India’s reserve position (RTP) with the IMF was up by $9 million to $4.631 billion.