The country's foreign exchange reserves have risen to an all-time record high of $ 555.12 billion for the week ended 16 October 2020. According to data released by the Reserve Bank of India (RBI), the country's foreign exchange reserves had increased by $ 5.867 billion to $ 551.505 billion in the week ended October 9.
Hence the increase
According to the data, the main reason for the rise in foreign exchange reserves during the reporting period is the substantial increase in foreign currency assets (FCA). It forms an important part of the total foreign exchange reserves. During this time the FCA increased by $ 3.539 billion to $ 512.322 billion.
Gold reserves increased by $ 8.6 million
According to the Reserve Bank data, the country's total gold reserves increased by $ 86 million to $ 36.685 billion in the week under review. In addition, the Special Drawing Rights (SDR) from the International Monetary Fund remained steady at $ 1.480 billion. According to the data, the country's foreign exchange reserves with the International Monetary Fund also decreased by $ 11 million to $ 4.634 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 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 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 good foreign exchange reserves 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.