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SDRs  and  Balance of Payments (BoP)

  Feb 22, 2022

SDRs  and  Balance of Payments (BoP)

Q Why is it in News ?

A A recent report by the RBI shows that India received support of $17.86 billion in August 2021 by way of Special Drawing Rights (SDRs) has helped cushion the worsening current account deficit.

Q What are Special Drawing Rights (SDRs)?

Q What are the key components of BOP?

A The BOP divides transactions of a country with the rest of the world into two accounts:

  1. Current Account: It consists of net trade of exports and imports of products and services, net earnings on cross-border investments and net transfer payments.
  2. Capital Account: It constitutes a country’s transactions in financial instruments i.e. assets and liabilities constituting of direct investment, portfolio investment, loans, banking capital, and other capital.

Q What does the SDR support signify?

Q Is dependence on SDR a matter of concern?

A A BOP dependent on an SDR-dependent capital account surplus to cushion the country’s widening current account deficit is not a comfortable position to be in.

Q What is Foreign Exchange Reserve ?

India’s forex reserves cover:

  1. Foreign Currency Assets (FCAs)
  2. Special Drawing Rights (SDRs)
  3. Gold Reserves
  4. Reserve position with the International Monetary Fund (IMF)

Q  What is significance of these reserves ?

Q What are Initiatives taken by the government to increase forex ?