Foreign Exchange Reserves:
- Assets held as reserve by a central bank in the form of foreign currencies, Gold and SDR .
- RBI is the custodian of FOREX and has the primary responsibility of collection, compilation and dissemination of data relating to foreign exchange reserves.
- Most of the foreign exchange reserves are held in US dollars.
India’s Forex Reserve include:
• Foreign Dollar assets
• Gold reserves
• Special Drawing Rights
• Reserve tranche with IMF
Forex as on Jan 2025 is 629 .5 Billion US $ with the components as mentioned in the image taken from RBI Report:
Reserve Tranche with IMF :
- Out of total SDR contribution of a country, 25% is kept in the form of gold and foreign currencies while 75 % is kept in the form of local currency and this 25 % is referred to as Reserve Tranche.
- This Reserve tranche provides for unconditional drawing right of the country on the IMF.
- The Reserve Tranche Portion (RTP) of the quota can be accessed by the member nation at any time.
- This RTP amount remains with IMF and is available as per the demand of the contributing country without any service fee.
Reserve Tranche Position=
SDR Quota - Own Currency =
Foreign Currency/SDRs paid initially for membership.
*As per
website of MOSPI,India’s Reserve Position in the International Monetary Fund is not
included as part of foreign exchange reserves as they may not be available on
immediate demand, although some countries do include these balances as part of
their reserves.But RBI considers reserve tranche as part of foreign
reserve.
Objectives of Holding Forex Reserves:
- Reserves provide a level of confidence to markets and investors that a country can meet its external obligations in case of any emergency.
- Forex Reserve provides support system and confidence for monetary and exchange rate management.
- It Limits external vulnerability by maintaining foreign currency liquidity to absorb shocks during times of crisis or when access to borrowing is curtailed.
- All international transactions are settled in US dollars and are therefore needed to support our imports.
- It serves as a cushion in the event of a Balance of Payment (BoP) crisis on the economic front.
- The rising reserves have also helped the rupee to strengthen against the dollar.
