The country's foreign exchange reserves reached an all-time high of $ 513.25 billion during the week ended July 3, with a major increase of $ 6.47 billion. This information has been given in the latest data of the Reserve Bank of India.
Earlier, the country's foreign exchange reserves had increased by $ 1.27 billion to $ 506.84 billion in the week ended 26 June. For the first time in the week ending June 5, the country's foreign exchange reserves had gone above the $ 500 billion levels. At that time it reached $ 501.70 billion with a strong increase of $ 8.22 billion.
The rise in foreign exchange reserves in the week ended July 3 is due to an increase in foreign currency assets, a significant part of the total reserves. According to Reserve Bank data, foreign currency assets increased by $ 5.66 billion to $ 473.26 billion in the week under review. According to the Reserve Bank, gold reserves rose by $ 495 million to $ 34.02 billion in the week under review.
The Reserve Bank data showed that the special drawing rights in the International Monetary Fund increased by $ 4 million to $ 1.45 billion in the week under review, while the country's reserve currency reserves in the IMF increased by $ 259 million to $ 4.52 billion.
What is foreign exchange reserves?
Foreign exchange reserves are funds or other assets held by the country's central banks, which are used to repay liabilities when needed. Adequate foreign exchange reserves are very important for a healthy economy. It provides much-needed help to the economy in the event of an economic crisis to support imports.
This includes foreign exchange assets, gold reserves and other reserves in the IMF, of which foreign currency assets hold the largest share after gold.
Four big advantages of foreign exchange reserves
In 1991, the country had to mortgage gold to raise money. Then India had to pledge 47 tonnes of gold with England for just $ 400 million. But at current levels, India has enough money reserves to cover imports of more than a year. That is, it can easily meet the import expenditure of more than one year, which is its biggest advantage.
A country with a good foreign exchange reserve attracts a good share of foreign trade and earns the trust of trading partners. This may encourage global investors to invest more in the country.
The government may decide the immediate purchase of essential military goods because sufficient foreign exchange is available for payment.
In addition, foreign exchange reserves can play an effective role to reduce volatility in the foreign exchange market.