India 4th country in the world to have $700 billion Forex Reserves

India has become the fourth country in the world, after China, Switzerland, and Japan, with a foreign exchange (forex) reserve of more than $700 billion. The Indian foreign exchange has been increasing for the past seven consecutive weeks due to valuation gains and the Reserve Bank of India's continuous purchase of the US dollar from the market.

China is the largest foreign exchange holder in the world, followed by Japan, Switzerland and India.

According to the latest figure released by the Reserve Bank of India, the country's total foreign exchange reserves were $704.89 billion as of 27 September 2024. 

India's foreign exchange reserves have increased by $87.6 billion in 2024 so far. Last year, the Indian foreign exchange reserve increased by around $62 billion.

One of the major reasons for the increase in Indian foreign exchange reserves has been continuous foreign investment in the Indian equity and bond market. It has reached around $30 billion so far. Foreign investment in the Indian debt market has increased after the inclusion of Indian government bonds in the JP Morgan Emerging Market Bond Index.

 Statutory Status of Foreign Exchange in India

• The Reserve Bank of India Act 1934 provides for the composition of India's foreign exchange.
• The Act also makes the Reserve Bank of India (RBI) the sole custodian and manager of foreign exchange reserves. 

Composition of India’s Foreign Exchange Reserves 

According to the RBI Act 1934, the Indian foreign exchange reserves include foreign currency assets, Special Drawing Rights (SDRs), a Reserve Tranche Position (RTP) with the IMF, and Gold.

The Foreign Currency Assets include 

• investment in government securities of foreign countries,
• RBI’s deposits with the other country's central banks and the Bank for International Settlement (BIS) and
• deposits with overseas commercial banks.

Gold Reserves of RBI 

RBI keeps part of its gold reserve outside India with the Bank of England and the Bank for International Settlement (BIS) and part within India.

SDR (Special Drawing Rights )

Special Drawing Rights (SDR), created in 1969, are an accounting unit of the International Monetary Fund(IMF). They are also known as paper gold.

• Countries which are members of the IMF are allotted SDR
• SDR is not a currency; however, the member countries 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.
• The SDR cannot be held by individuals or private entities; it can only be held by the IMF, its member countries' central banks, and multilateral development banks.