India’s foreign exchange reserves increase by $ 8.895 billion to a record high of $ 642.453 billion
India’s foreign exchange reserves rose $ 8.895 billion to a record high of $ 642.453 billion in the week ending September 3, 2021, according to data from the Reserve Bank of India (RBI). According to RBI data, foreign exchange reserves reached a record high of $ 642.453 billion, mainly due to an increase in foreign currency assets (FCA).
In the reporting week ended Sept. 3, 2021, the country’s FCA rose $ 8.213 billion to $ 579.813 billion, according to weekly data released by the Reserve Bank of India (RBI) on Friday.
India’s foreign exchange reserves cover foreign currency holdings (FCA), special drawing rights (SDRs), gold reserves and the country’s reserve position with the International Monetary Fund (IMF).
Special Drawing Rights (SDRs) with the IMF increased by $ 29 million to $ 19.437 billion. The country’s reserve position with the IMF increased by $ 11 million to $ 5.121 billion. Gold reserves rose $ 642 million to $ 38.083 billion in the week of the report, the data showed.
What is the foreign exchange reserve?
Foreign exchange reserves are significant assets held by the central bank in foreign currency as reserves. They are commonly used to support the exchange rate and set monetary policy. In the case of India, foreign reserves include gold, dollars, and the IMF’s quota for Special Drawing Rights. Most reserves are generally held in US dollars, given the importance of currency in the international financial and trading system. Some central banks maintain reserves in euros, pounds sterling, Japanese yen or Chinese yuan, in addition to their reserves in US dollars.
Countries with the highest foreign exchange reserves
Currently, China has the largest foreign exchange reserves, followed by Japan and Switzerland. In July 2021, India overtook Russia to become the fourth largest country with foreign exchange reserves.
1. China – $ 3,408 billion
2. Japan – $ 1,424 billion
3. Switzerland – $ 1,087 billion
4. India – $ 642.45 billion
5. Russia – $ 620.8 billion
Importance of foreign exchange reserves
All international transactions are settled in US dollars and therefore necessary to support imports from India. More importantly, they must maintain their support and confidence for the action of the central bank, whether it is monetary policy action or an intervention on the exchange rate to support the national currency. It also helps to limit any vulnerability due to sudden disruptions in foreign capital flows, which can occur in times of crisis. Holding liquid foreign currencies provides protection against such effects and provides assurance that there will still be enough foreign exchange to help the country with crucial imports in the event of external shocks.
