India's Foreign Exchange Reserves - It's Billion Dollar History

 India's Foreign Exchange Reserves - It's Billion Dollar History

The Foreign Exchange Reserves are a needy for any Developing economy and for a Country which promotes on Exports. This would be taken care by the Country's Central Bank. Foreign Exchange reserves are generally the purchase or holding of any Global Currency in terms of Trade. Like, 'USD' is said to be the present common currency.

There are various reasons that the Central bank have holding the Forex reserves like to control the value of the Currency. The exported country may receive it's revenue in Dollars(USD). The trader who executes the global export trade, can receive in USD and the banks would convert this into the domestic or local currency on behalf of Trader. Then usually the banks can transfer this foreign currency - USD to the Central Bank.

The RBI(Reserve Bank of India) will be cautious about the value of the Indian rupee against the US Dollar. Increasing Foreign Exchange reserves is a positive not for the Country to deal with periods like Economic Downturn, War Tensions, External - Foreign Debt and the Fiscal Deficit due to the High imports. When it comes to the Forex Reserves, the USD Currency is not just cash, it would be in various instruments like Cash, Value of Goods and Services, Gold, Debt Securities or any deposits allowed by the IMF(International Monetary Fund).

During the Economic Crisis of 1991 in India, the country's import were hit hard. India's low Forex reserves were pushed to the level having only the required amount of imports for the next 3 weeks. The Rating agencies were also downgraded the nation's Debt Securities. Due to low foreign exchange reserves, India was almost went near default in World Trade.

The Gold reserves held by the Central bank were mortgaged with the IMF and then received an amount of USD 2.2 Billion from the Bank of England and UBS. It was that event led the country, which later recovered from it's Deficit, to embark on a policy of Economic Liberalization. 


 

So, we can know that how important the Foreign exchange reserves are for a Developing country. It is noteworthy that at the end of January 1991, India's Forex reserves were stood at USD 1.2 Billion and now it is around USD 580.3 Billion (as per 13th March, 2021). In 1991, India has mortgaged 67 Tonnes of Gold reserves to the International Monetary fund to revive the economy.

After such an event, the Central Bank is carefully monitoring it's Foreign exchange reserves in terms of Economy and Global Trade. Recently, India overtook Russia and moved to the Fourth Place in the world in Foreign Exchange Reserves. China (USD 3,336 Billion) is in the first place, followed by Japan (USD 1,379 B) and Switzerland (USD 1,080 B). The Global currency - Foreign exchange reserves comes with USD, Euro, the Japanese Yen, the Pound sterling and the Chinese currency.

India's Foreign exchange reserves have risen by over 10,000 Percent in the last 30 years. As such, the country's GDP has grown from USD 266 Billion in 1991 to USD 3 Trillion in 2019. It's about 1100 Percent Growth !

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