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India's forex reserves become the world’s 4th biggest

  • Posted By
    10Pointer
  • Categories
    Economy
  • Published
    15th Mar, 2021

Context

  • India’s foreign-exchange reserves surpassed Russia’s to become the world’s fourth-largest to $580.3 billion by edging out Russia’s $580.1 billion pile.

Forex Reserve status

  • Reasons for the surge: India’s reserves, enough to cover roughly 18 months of imports because of:
    • rare current-account surplus
    • rising inflows into the local stock market
    • foreign direct investment
  • Significance: It will help in a government meeting its debt obligations.
  • Rank: India comes at 4th place after China which has the largest reserves, followed by Japan and Switzerland.

Foreign Currency Assets (FCAs)

  • Foreign exchange reserves: These are assets denominated in a foreign currency that is held by a central bank.
  • Regulation: Reserve Bank of India Act and the Foreign Exchange Management Act, 1999 set the legal provisions for governing the foreign exchange reserves. 
  • Significance: Foreign exchange reserves of India act as a cushion against rupee volatility once global interest rates start rising
  • Categories: The Foreign exchange reserves of India consists of four categories
    • Foreign Currency Assets
    • Gold
    • Special Drawing Rights(SDRs)
    • Reserve Tranche Position

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