Why in News?

According to the recent data from RBI, India’s Forex reserves havecrossed $600 billion mark.

About Forex Reserves held by India:

• Forex reserves are assets held on reserve by a central bank mostly in foreign currencies, which can include bonds, treasury bills and other government securities.
• Most forex reserves are held in US dollars.

Objectives Behind Holding Forex Reserves:

• Support and maintain confidence in the policies for monetary and exchange rate management.
• Provides the capacity to the central bank or government to intervene in support of the national or union currency.
• Limits external vulnerability by maintaining foreign currency liquidity to absorb shocks during times of crisis.

India’s Forex Reserve include:

1. Foreign Currency Assets
2. Gold reserves
3. Special Drawing Rights
4. Reserve position with the IMF

Related Information:

Special Drawing Rights

• It is an international reserve asset, created by the IMF in 1969 with objective to supplement its member countries’ official reserves.
• The SDR is not a currency and nor a claim on the IMF. It is a potential claim on the freely usable currencies of IMF members. SDRs can be exchanged for these available currencies.
• The value of the SDR is calculated by a weighted basket of major hard currencies, including the US dollar, the euro, Japanese yen, Chinese yuan, and British pound.

Reserve Position in the IMF:

• A reserve tranche position refers to a portion of the required quota of currency each member country has to provide to the IMF that can be utilized for its own purposes.
• Simply stated, it is an emergency account that IMF members can access any time without agreeing to conditions or paying a service fee.