According to Reserve Bank of India (RBI), India’s foreign exchange (Forex) reserves have scaled to a fresh record high of $409.366 billion as on December 29, 2017. The surge was due to a massive spike in foreign currency assets, which is the key component of the reserves.
The forex is reserve assets held by a central bank in foreign currencies. It acts as a 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 the world, regardless of the 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 the largest component of Indian Forex Reserves.
As on 29 December 2017, FCAs which form a key component of reserves, rose by dollar 4.42 billion from the previous week to dollar 385.103 billion. FCAs are maintained in major currencies like euro, US dollar, pound sterling, Japanese Yen etc. Movement in FCA occurs 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 dollar 20.716 billion. Special drawing rights (SDR) from IMD rose by dollar 8.9 million from the previous week to dollar 1.511 billion. SDR is an international reserve asset created by IMF and allocated to its members in proportion to their quota at IMF. The Reserve Position in the IMF rose by dollar 12.1 million to dollar 2.035 billion.