Foreign exchange (forex) reserves are the foreign currency reserves held by a country's central bank.
India’s forex reserves have been inching upwards and have now crossed $500 billion. This instils tremendous confidence at a time when the economy is witnessing a harsh downturn.
Where is this money held?
The Reserve Bank of India Act, 1934 provides the overarching framework for deployment of reserves in different foreign currency assets and gold. Broadly, here are parameters within which the country’s forex reserves are held:
- Deposits with central banks across the globe
- Deposits with the Bank for International Settlements (BIS)
- Deposits with overseas commercial banks
- Debt instruments representing sovereign/sovereign-guaranteed liability with residual maturity for the debt papers not exceeding 10 years
- Instruments / Institutions as approved by the Central Board of the Reserve Bank in accordance with the provisions of the Act
- Dealing in certain types of derivatives.
As on March 31, 2020, the RBI held 653.01 tonnes of gold, with 360.71 tonnes being held overseas in safe custody with the Bank of England and the BIS. The remaining gold is held domestically.
In value terms (USD), the share of gold in the total foreign exchange reserves increased from about 6.14% (September 30, 2019) to about 6.40% (March 31, 2020).
For more details, access RBI’s latest report on Management of Foreign Exchange Reserves.
As an aside, as the forex reserves boom, the INR has been hitting lows against the USD (Rs 76.9088: $ 1) in the very recent past.
