What is it?
- Foreign Exchange Reserve indicates the reserves held by RBI in the form foreign currency assets, gold, SDR and reserve tranche. Components of foreign exchange reserve:
- Foreign Currency Assets: Currencies of foreign countries are held in foreign exchange reserves. Apart from currency it also includes foreign currency deposits held by RBI with foreign central banks and the Bank for International Settlements (BIS).
- Gold Stock of RBI: The RBI has gold stock as a backup to issue currency and to meet unexpected Balance of Payments (BOP) problems. (BOP problem occurs when a nation is unable to pay for essential imports or service its external debt repayments)
- SDR Holdings: Special Drawing Rights (also called “paper gold”) is a reserve created by the International Monetary Fund (IMF) to help countries that have BOP problems. The member countries have to contribute to this account in proportion to their IMF quota. The SDR basket consists of five major currencies of the world – the US dollar, Euro, British Pound, Chinese Renminbi and Yen (Japan).
- Reserve Tranche: The reserve tranche is a portion of the required quota of currency that each IMF member country must provide to the IMF. It can be accessed by the member country at any time for its own purposes without a service fee.
Why in News?
- India’s forex kitty jumped $5.929 billion to $595.067 billion for the week ended June 2.
- For the week ended June 2, the foreign currency assets, a major component of the reserves, increased by $$5.27 billion to $526.201 billion.
- Expressed in dollar terms, the foreign currency assets include the effect of appreciation or depreciation of non-U.S. units like the euro, pound and yen held in the foreign exchange reserves.
- Gold reserves jumped by $655 million to $45.557 billion. The Special Drawing Rights (SDRs) were down by $6 million to $18.186 billion. The country’s reserve position with the IMF was up $10 million to $5.123 billion in the reporting week.