The Foreign exchange reserves of India consists of below four categories:
- Foreign Currency Assets
- Special Drawing Rights (SDRs)
- Reserve Tranche Position
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Components of Foreign exchange reserves of India
Foreign currency assets (FCAs):
- This is the largest component of the Forex Reserves consisting of US dollar and other major non-US global currencies.
- Additionally, it also comprises investments in US Treasury bonds, bonds of other selected governments, deposits with foreign central and commercial banks.
- Gold reserve is the gold held by the Reserve Bank of India with the intention to serve as a guarantee to redeem promises to pay depositors, note holders (e.g. paper money), or trading peers, or to secure a currency.
Special Drawing Rights (SDRs):
- The SDR was created by the International Monetary Fund (IMF) as an international reserve asset in the year 1969 to supplement its member countries’ official reserves.
- It is essentially an artificial currency used by the IMF and is basket of national currencies.
Reserve Tranche Position:
- Each member of the IMF is assigned a quota, part of which is payable in SDRs or specified usable currencies (“reserve assets”), and part in the member’s own currency.
- The difference between a member’s quota and the IMF’s holdings of its currency is a country’s Reserve Tranche Position (RTP).
- A part of the quota can be withdrawn from IMF any time without any interest during critical situations of a country such a BOP crisis. This part of money which can be withdrawn without any interest is called RTP.