What is a forex reserve?
Forex reserve or Foreign exchange reserves are assets such as foregin cash, gold, treasury bills, bonds and other government securities held by a central bank or other monetary authority.
It is primarily used to balance payments of the country, influence the foreign exchange rate of its currency, and to maintain confidence in financial markets.
How did India accumulate such a huge forex reserve?
The increase in the overall reserves during was largely because of a swelling of the foreign currency assets. Expressed in dollar terms, foreign currency assets include the effect of appreciation or depreciation of non-US units such as the euro, pound and yen held in foreign exchange reserves.
However, Gold reserves declined by $502 Million to $37.604 Billion. The Special Drawing Rights (SDR) with the International Monetary Fund (IMF) declined by $1 Million to $1.513 Billion. The country’s reserve position with the IMF also declined by $16 Million to $5 Billion during the reporting week.
India is set to surpass Russia to rank 4th in the world.
As you can see from the picture above, there is very little difference in the forex reserve of India and Russia. Now, India may acquire the fourth position or it could continue to rank 5th for a while. This will depend on the fluctuation in the foregin currency assets.
- Note – The growth in Forex reserves does not happen in a day but overtime. The forex reserve in August 2019 was $403,376.4 Billion which grew to $542,021 Billion in October 2020 and then to $605,008 Billion in June 2021.
Where do other countries rank in Foregin Exchange Reserve Index in Asia?
Pakistan Foreign Exchange Reserves was measured at 16.6 USD Billion in April, 2021. Bangladesh Foregin Exchange Reserve was measured at $45,540 Billion in May, 2021 and Sri Lanka Foregin Exchange Reserve was measured at $4,470 Billion in April, 2021.
Note - Rupee value slipped 17 paisa to 73.18 against One U.S. Dollar as of 14th June, 2021.