According to the recent data from the Reserve Bank of India (RBI), India’s Foreign Exchange (Forex) reserves declined by USD 2.986 billion to reach USD 579.285 billion in the week ended 26th March 2021.
The gold reserve component of the Forex Reserve increased whereas the other components – Special Drawing Rights (SDR), the Foreign Currency Assets (FCA) and the Reserve Position witnessed decline.
About the Foreign Exchange Reserves
Foreign exchange reserves are assets held on reserve by a central bank in foreign currencies, which can include bonds, treasury bills and other government securities.
It needs to be noted that most foreign exchange reserves are held in US dollars.
Motive behind Holding Forex Reserves:
Supporting and maintaining confidence in the policies for monetary and exchange rate management.
Provides the capacity to intervene in support of the national or union currency.
Limits external vulnerability by maintaining foreign currency liquidity to absorb shocks during times of crisis or when access to borrowing is curtailed.
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