Forex reserves

Current Context : India has become the fourth country in the world to have over $700 billion in foreign exchange reserves, joining China, Japan, and Switzerland.

• As of the end of March 2024, India’s forex reserves stood at $646.4 billion, marking a significant increase of $68 billion from the previous year.​

ABOUT FOREX (FOREIGN EXCHANGE) RESERVE

• It comprises of different assets that are held by a central bank.
• In India, the RBI Act of 1934 contains the enabling provisions for the Reserve Bank of India (RBI) to act as the custodian of forex reserve, and manage reserves within the defined objectives.
• India’s foreign exchange reserves can cover 11.4 months of imports, which is well above the general norm of six months for a stable economy​.

COMPONENTS OF FOREX RESERVES:

• India’s forex reserves consist of:
  • Foreign Currency Assets (FCA): Largest component, held in major currencies.
  • Gold Reserves: Includes the value of gold holdings by the central bank.
  • Special Drawing Rights (SDR): A reserve asset created by the IMF, based on a basket of major currencies (US dollar, euro, Chinese renminbi, Japanese yen, and British pound sterling).
  • Reserve Tranche Position (RTP): The portion of the IMF quota that a country can access without stringent conditions​