Forex reserves of India.

Why in News?

• Forex reserves decline $571 mn to $563.5 bn
• After rising for five consecutive weeks, India’s forex kitty dropped USD 571 million to USD 563.499 billion for the week ended December 16, according to RBI data released on 23rd December 2022.
• In October 2021, the country’s foreign exchange kitty had reached an all-time high of USD 645 billion.
• Foreign Currency Assets (FCA), a major component of the overall reserves, decreased USD 500 million to USD 499.624 billion during the week to December 16, as per the Weekly Statistical Supplement released by the Reserve Bank of India (RBI).
• Expressed in dollar terms, FCA includes the effect of appreciation or depreciation of non-US units like the euro, pound and yen held in the foreign exchange reserves. Gold reserves decreased USD 150 million to USD 40.579 billion, it said.
• The Special Drawing Rights (SDRs) jumped USD 75 million to USD 18.181 billion. The country’s reserve position with the IMF also rose USD 4 million.

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.
  • India’s Forex Reserve include:
    • Foreign Currency Assets
    • Gold reserves
    • Special Drawing Rights
    • Reserve position with the International Monetary Fund (IMF).
  • Objectives of Holding Forex Reserves:
    • Supporting and maintaining confidence in the policies for monetary and exchange rate
    • 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.

Special Drawing Rights

• The SDR is an international reserve asset, created by the IMF in 1969 to supplement its member countries’ official reserves.
• The SDR is neither a currency nor a claim on the IMF. Rather, it isa potential claim on the freely usable currencies of IMF members. SDRs can be exchanged for these currencies.
• The value of the SDR is calculated from a weighted basket of major currencies, including the US dollar, the euro, Japanese yen, Chinese yuan, and British pound.
• The interest rate on SDRs or (SDRi) is the interest paid to members on their SDR holdings.