India’s forex reserves rise USD 204 million to USD 532.868 billion

India’s forex reserves rise USD 204 million to USD 532.868 billion: The Reserve Bank of India reported on Friday, October 14, that India’s forex reserves increased by USD 204 million to USD 532.868 billion for the week ended October 7 due to an increase in the value of gold holdings. Overall reserves fell by USD 4.854 billion to USD 532.664 billion in the preceding reporting week. Foreign Currency Assets (FCAs), a significant component of overall reserves, fell by USD 1.311 billion. The FCA takes into account the effect of non-US currency appreciation or depreciation on foreign exchange reserves, such as the euro, pound, and yen.

What is Foreign Exchange Reserve?

Important assets held by the central bank in foreign currencies as a reserve are known as foreign exchange reserves. They are typically employed to set monetary policy and support the currency rate. In India, foreign reserves consist of gold, dollars, and a certain amount of SDRs from the IMF. Given the currency’s significance in the global financial and trade system, the majority of reserves are typically stored in US dollars. In addition to holding reserves in US dollars, some central banks also hold reserves in Euros, British pounds, Japanese yen, or Chinese yuan.

What is the significance of these reserves?

Since US dollars are the default currency for all international transactions, they are required to pay for imports into India. Moreover, they are required to promote and uphold trust in central bank actions, including any changes to monetary policy or any manipulation of exchange rates to support the native currency. Additionally, it lessens any vulnerability brought on by a crisis-related unexpected disruption in foreign capital flows. Thus, keeping liquid foreign exchange provides protection from such effects and the assurance that, in the event of an external shock, there would still be sufficient foreign exchange to support the country’s essential imports.