India’s Forex reserves cross record $600 billion-mark, soon to become 4th largest forex reserves holder globally
India’s foreign exchange reserves crossed the $ 600 billion mark for the first time after rising $ 6.842 billion in the week ending June 4, according to data from the Reserve Bank of India (RBI) on Friday. According to weekly data from RBI, foreign exchange reserves rose to a record $ 605.008 billion during the reporting week, supported by the growth of foreign exchange assets (FCA), a major component of total reserves.
India’s forex reserves cover foreign exchange assets (FCA), special drawing rights (SDRs), gold reserves and the country’s reserve position in the International Monetary Fund (IMF).
The increase in foreign exchange reserves is largely due to an increase in foreign exchange assets (FCA). According to weekly RBI data, FCAs rose 7.362 billion dollars to 560.890 billion dollars.
Expressed in dollars, foreign currency assets include the effect of appreciation or depreciation of non-US units such as the euro, the pound and the yen held in foreign exchange reserves.
Gold reserves fell by $ 502 million to $ 37.604 billion. Special drawing rights (SDRs) with the International Monetary Fund (IMF) have decreased by $ 1 million to $ 1.513 billion. The country’s reserve position with the IMF also fell by 16 to 5 billion dollars during the reporting week, the data show.
What is a foreign exchange reserve?
Foreign exchange reserves are important assets held by the central bank in foreign currency as reserves. They are usually used to support the exchange rate and determine monetary policy. In the case of India, foreign reserves include gold, dollars and the IMF’s special drawing rights quota. Most of the reserves are usually held in US dollars, given the importance of the currency in the international financial and trading system. Some central banks hold reserves in euros, British pounds, Japanese yen or Chinese yuan in addition to their reserves in US dollars.
Why are these reserves so important?
All international transactions are settled in US dollars and are therefore required to support imports from India. More importantly, they must maintain support and confidence in the actions of the central bank, whether they are monetary policy actions or some exchange rate intervention to support the local currency. It also helps to reduce any vulnerabilities due to sudden disruptions in foreign capital flows that may occur during a crisis. The retention of liquid foreign currency provides a cushion against such effects and gives confidence that there will still be enough foreign currency to help the country with crucial imports in the event of external shocks.
Countries with the highest foreign reserves
China currently has the largest reserves, followed by Japan, Switzerland, Russia and India at the International Monetary Fund. India is very close to overtaking Russia to become the fourth largest country with foreign exchange reserves.
1. China – 3330 billion dollars
2. Japan – 1378 billion dollars
3. Switzerland – 1070 billion dollars
4. Russia – 605.200 billion dollars
5. India – 605.008 billion dollars
Initiatives taken by the government to increase the foreign exchange market
To increase foreign exchange reserves, the Indian government has taken many initiatives such as AatmaNirbhar Bharat, in which India must become an independent state so that India does not have to import things that India can produce. In addition to AatmaNirbhar Bharat, the government has launched schemes such as a duty exemption, duty relief or export tax (RoDTEP) scheme, a Nirvik scheme (Niryat Rin Vikas Yojana) and others. In addition to these schemes, India is one of the leading countries that has attracted the highest amount of foreign direct investment, thus improving India’s foreign exchange reserves.