According to the latest RBI data,India’s foreign exchange reserves has reached a new high at USD 430 billion due to rise in foreign currency assets.
Foreign exchange reserves are assets held on reserve by a central bank in foreign currencies.These reserves are used to back liabilities and influence monetary policy.
These assets serve many purposes but are most significantly held to ensure that a central government agency has backup funds if their national currency rapidly devalues or becomes altogether insolvent.
The Foreign exchange reserves of India consists of four categories which are (a)Foreign Currency Assets (b)Gold (c)Special Drawing Rights(SDRs) and (d)Reserve Tranche Position.
A reserve tranche is a portion of the required quota of currency each member country must provide to the International Monetary Fund(IMF) that can be withdrawn at any time without any interest during critical situations of a country.
The Special drawing rights(SDR) is an international reserve asset created by the IMF in 1969 to supplement its member countries official reserves.The SDR is neither a currency nor a claim on the IMF.
The SDR basket Includes five currencies namely the U.S. dollar, the euro, the Chinese renminbi, the Japanese yen and the British pound sterling.