The country's foreign exchange reserves increased by $5.066 billion to a record high of $608.999 billion in the week ended June 25, 2021. According to the data of the Reserve Bank of India, in the previous week ended June 18, foreign exchange reserves fell by $ 4.418 billion to $ 603.933 billion.
hence the increase
According to the Reserve Bank's weekly data, the increase in foreign exchange reserves for the week ended June 25 was due to the increase in foreign currency assets (FCAs), a major component of the overall reserves. During this period, FCA grew by $4.7 billion to $566.24 billion. Foreign currency assets, expressed in dollar terms, also include the effect of an increase or decrease in the value of other foreign currencies such as the euro, pound, and yen held in foreign exchange reserves.
Gold reserves increased by $ 365 million
According to the data, during this period, gold reserves increased by $ 365 million to $ 36.296 billion. At the same time, there was no change in the Special Drawing Rights (SDR) with the International Monetary Fund at $ 1.498 billion. The Reserve Bank said that during the week under review, there was a slight increase in India's reserves with the IMF. It rose by $1 million to $4.965 billion.
What are foreign exchange reserves?
Foreign exchange reserves are funds or other assets held by a country's central banks, which are used to pay off liabilities when needed. Adequate foreign exchange reserves are very important for a healthy economy. It provides much-needed help to the economy in times of economic crisis to support imports. It consists of foreign currency assets, gold reserves, and other reserves in the IMF, of which foreign currency assets hold the largest share after gold.
Four big advantages of forex reserves
In 1991, the country had to pledge gold to raise money. Then India had to mortgage 47 tonnes of gold with England for just $ 400 million. But at the current level, India has enough reserves to cover imports for more than a year. That is, with this the import expenses of more than one year can be easily met, which is its biggest advantage.
A country having good foreign exchange reserves attracts a good share of foreign trade and earns the trust of the trading partners. This may encourage global investors to invest more in the country.
The government may also decide to urgently purchase essential military goods as there is sufficient foreign exchange available for payment.
Additionally, foreign exchange reserves can play an effective role in reducing volatility in the foreign exchange market.