What is in news : As of 25th June, 2021, India has surpassed Japan, China, Russia and Switzerland to become the world’s fifth-largest foreign exchange reserve holder.

Details:

• India’s
  • Balance of payments has surpluses in both the capital and current accounts in the year 2020-21 which largely contributed to the gains in the foreign exchange reserves of the country.
  • Present foreign exchange reserves are sufficient enough to provide a buffer against unforeseen external shocks and also to cover imports for more than 18 months.
• RBI’s intervention in the foreign exchange market to smooth out valuation changes due to movement of the US dollar against other international currencies in the reserve basket, exchange rate volatility, movement in gold prices, inflow of aid receipts and interest earnings from the deployment of foreign currency assets are the main causes for the variation in the country’s Forex reserves.
• Rising foreign exchange reserves which is accompanied by current account deficit shows a balance of payments surplus.

Forex Reserves: The Forex reserves are assets which are held by the central bank of a country and it mainly comprise of bonds, foreign currencies, gold, bank deposits, financial assets and special drawing rights.