Context
According to recent data from Reserve bank of India (RBI), India's Foreign Exchange (Forex) reserves posted a decline of USD 678 million during the week ended 21st January 2022 to reach USD 634.287 billion.
Foreign Exchange Reserves/Forex Reserves
- The total foreign currencies (of different countries) an economy possesses at a point of time is its ‘foreign currency assets/reserves’.
- The Forex Reserves of an economy is its ‘foreign currency assets’ added with its gold reserves, SDRs (Special Drawing Rights) and Reserve Tranche in the IMF.
- Reserve Tranche is like an emergency account from which a portion of member country’s quota can be withdrawn without agreeing to conditions or paying a service fee.
- In a sense, the Forex reserves is the upper limit up to which an economy can manage foreign currency in normal times if need be.
- The adequacy of Forex Reserves is measured by Import Cover.
- The Import Cover for India at present is around 9.5 months meaning the country's foreign exchange reserves are enough to cover only 9.5 months long imports.
