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.
