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 Foreign exchange reserves crossed the USD 590 billion mark on the week ended 14th March. In terms of rupee, it is 43,24,574 crores.
- In the last one year, the country’s foreign exchange reserve rose by USD 102 billion.
- Country has foreign currency assets of USD 546.87 billion, Gold of USD 36654 million, SDR of USD 1506 million and reserve position in the IMF of about USD 5,000 million.