Indian Foreign Exchange Reserve hit a two year high
Banking and Finance
5 min read
According to data released by the Reserve Bank of India (RBI) on 15 March 2024, the Indian foreign exchange reserve increased for a third week and reached a two-year high of $636.10 billion as of 8 March 2024. The RBI is the custodian of the foreign exchange reserves and releases foreign exchange data every week.
In September 2021, the Indian foreign exchange reserves hit an all-time high of $642.45 billion.
One of the main reasons for the increase in the foreign exchange reserve has been the RBI buying dollars from the spot market to absorb the flow of foreign exchange and prevent the appreciation of the Indian rupee. Another reason for this is the increase in the price of gold. The foreign exchange reserves include gold kept by the RBI. After China, India is the 2nd largest consumer of gold in the world.
Legal provisions regarding Foreign Exchange in India
The Reserve Bank of India Act 1934 makes the Reserve Bank of India (RBI) the sole custodian and manager of foreign exchange reserves. The act also specifies the composition of the foreign exchange reserves and the instruments and securities in which the foreign exchange reserves can be invested.
Composition of India’s Foreign Exchange Reserves
The Indian foreign exchange reserves include Foreign Currency Assets, Special Drawing Rights (SDRs), Reserve Tranche Position (RTP) with the IMF and Gold.
The Foreign Currency Assets include
- investment in government securities of foreign countries,
- deposits with the other countries Central banks and the Bank for International Settlement (BIS), and
- deposits with overseas commercial banks.
Currency of Intervention
RBI uses US dollars and EURO as the currency of intervention, but the foreign currency assets consist of multi-currency assets (US dollars, British Pound, Japanese Yen, Euro, etc.). The foreign exchange value is always denominated in the US dollars.
Gold Reserves of RBI
RBI keeps a part of its gold reserve outside India with the Bank of England and the Bank for International Settlement (BIS). A part of the gold reserve is kept in India.
SDR (Special Drawing Rights )
The SDR is an accounting unit of the IMF. The International Monetary Fund(IMF)created the Special Drawing Rights(SDR) in 1969. It is also known as paper gold.
SDR is not a currency; however, the member countries of the IMF can exchange their SDR holdings with other members for freely convertible currency.
The value of the SDR is linked to a basket of currencies, namely the US dollar, Euro, Chinese Yuan, Japanese Yen, and the United Kingdom’s Pound sterling.
Individuals or private entities cannot hold the SDR. It can be held only by the IMF, its member countries' central banks, and multilateral development banks.
India’s Foreign Reserves as of 15 March 2024
According to the RBI, the following is India’s foreign exchange reserve breakdown.
|
Item |
All the amounts are in US dollars and billions. |
% of foreign exchange |
|
Total Reserves |
636.095 |
100% |
|
Foreign Currency Assets |
562.352 |
88% approx |
|
Gold |
50.716 |
7.9% approx |
|
Special Drawing Rights (SDR) |
18.211 |
2.8 % approx |
|
Reserve Tranche Position with the IMF |
4.817 |
