BEWARE OF FAKE INSTITUTES WITH SIMILAR NAMES. blank    blank
banner

Forex Reserves at 500 Billion US Dollars


Forex Reserves at  500 Billion US Dollars

Forex Reserves at 500 Billion US Dollars

June 2020 is historic for India as the foreign exchange reserves with the reserve bank of India went past the mark of 500 billion US dollars. It is one hundred times the amount RBI held forty years back when India suffered the worst sovereign debt crisis.

What is meant by forex reserves?

They are made up of

  • Foreign currencies like US dollar
  • Gold
  • Special Drawing Rights of the International Monetary Fund
  • Certain amount of foreign currency held with the IMF as a security deposit called reserve tranche

Why do we need them?

We need them for a variety of reasons like

  • Service the external debt
  • Finance imports for food and energy security
  • Build confidence for the external investors and creditors that there is no risk for their commitments
  • Enter the market for stability of rupee in its external value
  • Use it as a base for printing rupee for economic growth
  • To help issue sovereign bond at a reasonable rate
  • It also brings good ratings for the economy and thus establishes a virtuous cycle

How is it that when the economy is in a depression mode, forex build-up is taking place at an unprecedented level?

 

Yes, the economy is contracting. On June 1, Moody’s cut the nation’s rating to the lowest investment grade. Remittances from the Indian diaspora declined due to global economic devastation. However,

  • Expectations from the Indian economy are high.
  • Economic reforms are in the pipeline to attract foreign capital like the corporate tax reforms in September 2019.
  • Reliance sold a significant part of its Jio Platforms for about 14 billion dollars.
  • RBI has been accumulating forex.
  • Crude prices have fallen making the imports cost less. thus creating forex savings.

Why is the Rupee falling then?

Yes, rupee fell all the way down to almost Rs.77 for a dollar. Its performance is sub-par. That is because,

  • The value of the rupee is the net effect of global confidence.
  • In fact, cheaper rupee is one of the reasons for the higher inflows as each dollar fetches more in rupees. So, RBI bought dollars and cheapened the rupee, intentionally or otherwise.


Get a call back

Fill the below form to get free counselling for UPSC Civil Services exam preparation

 
POPULAR BLOGS

How can I Prepare for the UPSC CSE Prelims 2022 Exam?
How can I Prepare for the UPSC CSE Prelims 2022 Exam?
 
How will COVID-19 change the world?
How will COVID-19 change the world?
 
How to Study World Geography with Maps for UPSC
How to Study World Geography with Maps for UPSC
 
How to Prepare CSAT for UPSC Prelims
How to Prepare CSAT for UPSC Prelims
 
Important Articles of the Indian Constitution
Important Articles of the Indian Constitution
 
About Indian Revenue Service (IRS)
About Indian Revenue Service (IRS)
 
Helicopter Money and Universal Basic Income
Helicopter Money and Universal Basic Income
 
Recent Reforms in Space Sector
Recent Reforms in Space Sector
 
Is the President of India Impeached or Removed or Both?
Is the President of India Impeached or Removed or Both?
 
India Science, Technology and  Innovation Policy 2020
India Science, Technology and Innovation Policy 2020
 
Defections
Defections
 
Ten Reasons for Chinese Aggression
Ten Reasons for Chinese Aggression
 
Government’s Climate Report
Government’s Climate Report
 
Dreamers in the USA
Dreamers in the USA
 
India and Australia Defense Agreement
India and Australia Defense Agreement