India’s Foreign Exchange (Forex) reserves decline 

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.