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Indias Foreign Exchange Reserve
Author(s): Shail HadaAbstract
For the sake of economic stability and public trust in Indias financial system the foreign currency reserves are overseen by the Reserve Bank of India (RBI). The assets that make up these reserves include gold foreign currency Reserve Tranche Position (RTP) with the International Monetary Fund (IMF) and Special Drawing Rights (SDRs) that have been allotted by the IMF. Among the most important reasons to have cash on hand are: The reserves provide liquidity to regulate exchange rate volatility which helps stabilize the Indian Rupee (INR) the national currency. In order to keep the countrys balance of payments from collapsing they make sure that the government can pay its bills including imports and foreign loans. Having sufficient reserves demonstrates economic stability which in turn encourages investment and lending from outside the country. - Assisting with Economic Policy: Reserves protect the economy from unexpected shocks and make it easier for the RBI to put monetary policy into action. In order to keep these funds liquid and secure their management requires intelligent investing to provide returns. The quantity and composition of reserves are reported on a periodic basis by the RBI. These reports indicate the general economic health and stability of Indias external sector.