In eight months, forex reserves rise by more than $100 billion

Context

• The forex reserves stood at $469.9 billion in the week ended March 20, 2020. It has risen by $102.8 billion since then and to touch $572.7 billion in the weekended November 13, 2020.

What are Forex reserves?

• Foreign exchange reservesor forex reserves are cash and other reserve assets held by a central bank or other monetary institution that are primarily available to balance payments of the country.
• Foreign exchange reserves assets can comprise banknotes, deposits, bonds, treasury bills and other government securities of the reserve currency.

What it is comprised of in India?

• The Foreign exchange reserves of India consist of below four categories-
  • Foreign Currency Assets
  • Gold
  • Special Drawing Rights(SDRs)
  • Reserve Tranche Position

What are the reasons?

• a sharp decline in imports
• strong foreign investment inflows
• government measures
• a sharp decline in imports of crude oil, electronics and gold due to a lockdown

Who govern it?

• Reserve Bank of IndiaAct and the Foreign Exchange Management Act, 1999 set the legal provisions for governing the foreign exchange reserves. 
• Reserve Bank of Indiaaccumulates foreign currency reserves by purchasing from authorized dealers in open market operations.

How it is helpful?

• Foreign exchange reserves of India act as a cushion against rupee volatility once global interest rates start rising.
• It also uses it as a tool for inflation management.
• With higher foreign investment inflows, RBI has been buying dollars.