According to Reserve Bank of India (RBI), India’s foreign exchange (Forex) reserves have scaled to fresh record high of $409.366 billion as on December 29, 2017. The surge was due to massive spike in foreign currency assets, which is key component of the reserves.
The forex are reserve assets held by a central bank in foreign currencies. It acts as buffer to be used in challenging times and used to back liabilities on their own issued currency as well as to influence monetary policy. Almost all countries in world, regardless of size of their economy, hold significant foreign exchange reserves.
The components of India’s FOREX Reserves include Foreign currency assets (FCAs), Gold, Special Drawing Rights (SDRs) and RBI’s Reserve position with International Monetary Fund (IMF). FCAs constitute largest component of Indian Forex Reserves.
As on 29 December 2017, FCAs which form key component of reserves, rose by $4.42 billion from the previous week to $385.103 billion. FCAs are maintained in major currencies like euro, US dollar, pound sterling, Japanese yen etc. Movement in FCA occur mainly on account of purchase and sale of foreign exchange by RBI, income arising out of deployment of Forex reserves, external aid receipts of government and revaluation of assets.
During this period, Gold reserves remained stable at $20.716 billion. Special drawing rights (SDR) from IMD rose by $8.9 million from the previous week to $1.511 billion. SDR is an international reserve asset created by IMF and allocated to its members in proportion of their quota at IMF. The Reserve Position in the IMF rose by $12.1 million to $2.035 billion.