The Reserve Bank of India (RBI) yesterday released the 40th half-yearly report on the management of foreign exchange reserves.
Report on Management of Foreign Exchange (Forex) Reserves
| Forex Reserves Component | Value (Billion $) | % |
| Foreign Currency Assets (FCA) | 519.48 | 88.23 |
| Gold | 45.66 | 7.76 |
| Special Drawing Rights (SDR) | 18.47 | 3.13 |
| Reserve Trance Position (RTP) in IMF | 5.17 | 0.88 |
| Total Forex Reserves | 588.78 | 100.00 |
Forex Reserves
India’s Forex Reserves rose from $532.66 billion at the end of September 2022 to $578.45 billion at the end of March 2023.
Gold Reserves
- As of March-end 2023, RBI’s gold reserves increased to 794.64 tonnes from 760.42 metric tonnes in March-end 2022.
- The year-on-year increase in gold reserves was 34.22 tonnes.
- Out of the total gold reserves, 437.22 tonnes are held overseas in safe custody with the Bank of England and the Bank of International Settlements (BIS).
- The total gold reserves also include gold deposits of 56.32 metric tonnes.
- The remaining 301.10 tonnes of gold is held domestically by RBI.
- The share of gold in the total foreign exchange reserves increased from about 7.06% as of September-end 2022 to about 7.81% as of March-end 2023.
What are Foreign Exchange Reserves?
- Foreign Exchange Reserves, also known as forex reserves, are the foreign currency deposits and bonds held by a country’s central bank.
- These reserves are used to support the value of the country’s domestic currency and ensure financial stability in the international market.
- Forex reserves typically include foreign currencies, gold, special drawing rights (SDRs), and reserves held in the International Monetary Fund (IMF).
- These reserves play an important role in maintaining a country’s economic stability and are used to support various policy measures such as exchange rate stabilization, debt servicing, and managing financial crises.
- RBI is a custodian and manager of forex reserves.
- RBI operates within the overall policy framework agreed upon with the government.
Objectives of Forex Reserves
- To maintain stability in the foreign exchange market by intervening when there is excessive volatility or speculation.
- To ensure the country can meet its international payment obligations, such as import payments or external debt servicing.
- To provide a buffer against external shocks, such as economic crises, natural disasters, or political instability, that can affect the country’s balance of payments or exchange rate.
- To signal to the markets and international investors that the country has the financial strength and credibility to honor its financial commitments.
- To facilitate international trade and investment by providing confidence to foreign counterparties and reducing exchange rate risks.
Gold and Currency
- Gold was used as the world reserve currency until the 20th century and the US used the gold standard until 1971.
- The paper money had to be backed up by an equal amount of gold in reserves.
- Some economists advocate for a return to the gold standard due to currency volatility.
- During inflationary times, the demand for gold increases as it retains its value better than other currencies.
- Gold can act as a hedge against inflation.
- A country’s currency value can increase when it is a net exporter or exports gold since it increases the value of the country’s total exports.
- Central banks print more money to buy gold, which creates an excess supply of currency, reducing its value.
About Reserve Bank of India (RBI)
- The Reserve Bank of India (RBI) is the central bank of India, established on April 1, 1935, under the Reserve Bank of India Act, 1934.
- The RBI is responsible for regulating the monetary policy of the country, issuing currency notes, managing foreign exchange reserves, and ensuring the stability of the financial system.
- The RBI is headed by a governor and has a central board of directors appointed by the government of India.
- First RBI Governor – Sir Osborne Smith
- First India RBI Governor – Sir C.D. Deshmukh
- Current RBI Governor – Shaktikanta Das (Since December 2018)
- Its headquarters are located in Mumbai, Maharashtra.
- It has four regional offices and 19 sub-offices located across the country.
- The bank is also a member of the Asian Clearing Union, the Bank for International Settlements, and the International Monetary Fund.
- The primary objective of the RBI is to maintain price stability and support the economic growth of the country.
- It does this through various monetary policy tools such as open market operations, reserve ratios, and policy interest rates.
- The bank is also responsible for regulating and supervising the banking sector, including banks, non-banking financial institutions, and payment systems.
- The RBI manages India’s foreign exchange reserves, which are held in various currencies and invested in different assets such as gold, foreign government securities, and deposits with foreign central banks. The foreign exchange reserves serve as a cushion against external economic shocks and help maintain the value of the Indian rupee against other major currencies.
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FAQs
What do you mean by Forex reserves?
Foreign exchange reserves, also known as forex reserves, refer to foreign currency deposits and various financial instruments held by a country’s central bank, usually denominated in different foreign currencies. These reserves are used to support the value of a country’s currency, ensure external financial stability and pay off international debts.
Foreign exchange reserves are accumulated by a country through its trade and financial transactions with other countries. A country with strong export earnings and foreign investments typically has a higher level of forex reserves. In times of economic uncertainty, forex reserves act as a buffer against external shocks such as sudden capital outflows or currency devaluation.
Foreign exchange reserves are accumulated by a country through its trade and financial transactions with other countries. A country with strong export earnings and foreign investments typically has a higher level of forex reserves. In times of economic uncertainty, forex reserves act as a buffer against external shocks such as sudden capital outflows or currency devaluation.
Who is the owner of RBI?
The Reserve Bank of India (RBI) is owned by the government of India. It was established in 1935 under the Reserve Bank of India Act of 1934. The central board of directors, which oversees the management and administration of the bank, is appointed by the government. The Governor of the RBI, who serves as the bank’s chief executive officer, is also appointed by the government. While the government owns the RBI, the bank operates with a high degree of autonomy in matters related to monetary policy, financial regulation, and banking operations.
Where is headquarter of RBI?
In the beginning, the central office of the Reserve Bank was set up in Calcutta, but it was later relocated to Mumbai in 1937, where it has been permanently situated ever since.
