UPSC Articles
India’s Foreign Exchange (Forex) reserves decline
Part of: GS Prelims and GS-III – Economy
In News:
- According to the recent data from the RBI, India’s Foreign Exchange (Forex) reserves have declined by $113 million to $479.45 billion in the week due to a fall in foreign currency assets.
- The main reason for the decline is attributed to fall in Foreign Currency Assets(FCAs).
Important value additions:
Foreign Exchange Reserves
- These are assets held on reserve by a central bank in foreign currencies, which can include bonds, treasury bills and other government securities.
- Most foreign exchange reserves are held in U.S. dollars.
- These assets are held to ensure that the central bank has backup funds if the national currency rapidly devalues or becomes altogether insolvent.
India’s Forex Reserve
- It includes
- Foreign Currency Assets(FCA)
- Gold reserves
- Special Drawing Rights
- Reserve position with the International Monetary Fund (IMF)
- FCAs:
- Assets that are valued based on a currency other than the country’s own currency.
- It is the largest component of the forex reserve.
- It is expressed in dollar terms.
- Special drawing rights (SDR)
- It is an international reserve asset, created by the IMF in 1969 to supplement its member countries’ official reserves.
- It is neither a currency nor a claim on the IMF.
- The value of the SDR is calculated from a weighted basket of major currencies, including the U.S. Dollar, the Euro, Japanese Yen, Chinese Yuan, and British Pound.
- Reserve position with the International Monetary Fund (IMF)
- It implies a portion of the required quota of currency each member country must provide to the International Monetary Fund (IMF) that can be utilized for its own purposes.
- It is basically an emergency account that IMF members can access at any time without agreeing to conditions or paying a service fee.
