International Monetary Fund Current Affairs - 2019

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IMF Chief Christine Lagarde to now head European Central Bank

International Monetary Fund (IMF) Managing Director Christine Lagarde has been confirmed as new head of European Central bank (ECB). Her appointment would make her 1st woman to lead powerful institution of ECB.

Key Highlights

Following Lagarde’s nomination as President of ECB she announced to temporarily relinquish her responsibilities as head of IMF. She will now step down 2 years before end of her second five-year term as IMF Chief.

She would be succeeding Mario Draghi, whose term ends on 31 October 2019.

About Christine Lagarde

The 63 years old French, was the 1st woman to head International Monetary Fund (IMF) when she took the job in 2011.

In 2005 she was appointed France’s trade minister and in 2007 as finance minister.

She will next head European Central Bank starting November 2019.

About European Central Bank

It was established on 1 June 1998 with Headquarters in Ostend district, Frankfurt, Germany. It is the central bank of 19 European Union (EU) countries which have adopted Euro.

It is EU’s one truly federal institution which is responsible for administering of Euro and Monetary policy of Eurozone. It is one of the largest monetary areas in world.

After U.S. Federal Reserve, ECB is most influential central bank in world.

Mandate: To maintain price stability in Euro area and so preserve purchasing power of single currency.

ECB Presidency:

It is not just most powerful position in Europe, far more significant than European commission presidency but is one of the most significant policymaking positions in world.

The position is currently held by Mario Draghi, who was widely credited with saving the euro during the eurozone debt crisis.

India’s Forex reserves rise to a record high of $426.42 billion

As per the data revealed by Reserve Bank of India (RBI), India’s foreign exchange (Forex) reserve rose to a life-time high of $426.42 billion (in week to 21 June 2019) after it surged by $4.215 billion boosted by higher foreign portfolio investments (FPI) and a stable rupee.

Key Highlights

Background: Earlier, the Forex reserves had scaled a record high of $426.028 billion in week to 13 April 2018. Since then it had been fluctuating and had even fallen by more than $35 billion, as monetary authority had been heavily intervening in market to salvage Indian rupee, which was worst performing currency in Asia throughout 2018.In previous reporting week (prior to June 21), reserves had declined by $ 1.358 billion to $422.2 billion.

India’s reserve position with International Monetary Fund (IMF) also rose by $9.6 million to $3.354 billion.

Reason: This rise in reserves was on account of increase in foreign currency asset, which is a major component of overall foreign exchange reserves of the country.

Foreign Currency Assets: expressed in terms of dollars includes effect of appreciation or depreciation of non-US units such as British pound, the Japanese yen and euro held in forex reserves. In reporting week of 21 June, foreign currency assets increased by $4.202 billion to $398.649 billion.

Gold Reserves: remained unchanged at $22.958 billion.

Special Drawing Rights (SDR): with IMF increased by $4.2 million to $1.453 billion. India’s reserve position with the fund also rose by $9.6 million to $3.354 billion..

Significance: According to market experts, with $427 billion, reserves can take care of imports for almost 10 months.

About Foreign Reserves

It is the reserve assets held by a central bank of country in foreign currencies which can act as a buffer and can help economy in challenging times. It can also be used to back liabilities on their own issued currency and to influence monetary policy of the country. Almost all countries across the world, regardless of size of their economy, hold significant forex reserves.

Importance: Forex reserves are one of the key revenue earning sources for a country central bank, which invests money in foreign government bonds and also with IMF and other secure investment class.

India’s FOREX Reserves includes components:

  1. Foreign currency assets (FCAs)- It constitutes largest component of Indian Forex Reserves and are expressed in US dollar terms.
  2. Gold Reserves
  3. Special Drawing Rights (SDRs)
  4. Reserve Tranche Position (RTP) of RBI with International Monetary Fund (IMF).

Higher forex reserves are must for a fast-growing economy such as India with higher imports and lower export earnings.