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Foreign exchange reserves decline by $6.24 billion to $583.94 billion

  • Posted By
    10Pointer
  • Categories
    Economy
  • Published
    13th Feb, 2021

Context

India’s foreign exchange reserves have declined by a massive USD 6.24 billion to reach USD 583.945 billion. In the previous week, the reserves had touched a record high of USD 590.185 billion.

Foreign Currency Assets (FCAs)

  • Foreign exchange reserves are assets denominated in a foreign currency that is held by a central bank.
  • Reserve Bank of IndiaAct and the Foreign Exchange Management Act, 1999 set the legal provisions for governing the foreign exchange reserves. 
  • Foreign exchange reserves of India act as a cushion against rupee volatility once global interest rates start rising
  • The Foreign exchange reserves of India consists of below four categories
  • Foreign Currency Assets
  • Gold
  • Special Drawing Rights(SDRs)
  • Reserve Tranche Position

Reasons behind the decline

  • The decline in the forex was mainly on account of a fall in foreign currency assets (FCAs), a major component of the overall reserves.
  • The foreign currency assets include the effect of appreciation or depreciation of non-US units like the euro, pound, and yen held in the foreign exchange reserves.