India’s Forex Reserves Rise, Boosted by IMF Special Drawing Rights

India’s foreign exchange reserves have demonstrated increases lately. This event is boosted by the billions-worth of special drawing rights holdings the International Monetary Fund (IMF) had allocated for the South Asian country.

We think it is important that our followers read this latest foreign exchange-related news. We believe it can aid them in comprehending the present currency markets and finance scenes in India.

Based on the news posted online by the Indian news source Times of India, India’s foreign exchange reserves had risen US$16.663 billion to US$633.558 billion in the previous week ending Friday, August 27. This event is reportedly mainly because of the increase in special drawing rights or SDR holdings.

The Special Drawing Rights is an international reserve asset. The IMF created it to supplement its member nations’ official reserves.

Additionally, the Special Drawing Rights is not a currency. It is a potential claim on the freely usable currencies of IMF member countries.

With that feature, the Special Drawing Rights can give countries like India liquidity. A basket of foreign currencies defines the Special Drawing Rights.

They consist of the US dollar, British pound sterling, and euro. Plus, the Special Drawing Rights includes the Japanese yen and the Chinese yuan.

According to the update posted online by Indian news outlet Mint, the IMF had allocated 12.57 billion special drawing rights to India last Monday, August 23. This figure is equivalent to US$17.86 billion and will be reflected in India’s foreign exchange reserves.

At the time of writing, the South Asian territory’s total Special Drawing Rights holdings is 13.66 billion, which is equal to US$19.41 billion. Data from the Reserve Bank of India (RBI) demonstrated India’s foreign exchange reserves increased by US$8.895 billion to reach a record-high of US$642.453 billion in the week that ended September 3.

Furthermore, the Indian central bank’s weekly data released on Friday, September 10, showed that the surge in India’s foreign exchange reserves was based on a rise in foreign currency assets or FCAs for the week ending September 3. FCAs are a major part of the overall reserves.

They are expressed in US dollar terms and include the impact of depreciation or appreciation of non-US currency units like the Japanese yen, British pound sterling, and euro held in the foreign exchange reserves.

The FCA increased by US$8.213 billion to US$579.813 billion in the reporting week, per the RBI data. India’s foreign exchange reserve position with the IMF rose by US$11 million to US$5.121 billion in the reporting week as well, based on the RBI information.

As for India’s gold reserves, in the reporting week, they were up by US$642 million to US$38.083 billion, according to the RBI’s collected information.  We think the rosy outlook for India’s foreign exchange reserve is positive news for traders of the US dollar and the Indian rupee.

We gathered that the increased special drawing rights allocation is a positive event for IMF member countries. After all, this global reserve asset facilitates unconditional liquidity to member nations of the international financial institution.

Thus, we believe the IMF can help India prevent deflation and inflation, economic stagnation, and excess demand as the coronavirus or COVID-19 pandemic is still underway.

We also think these latest events in the Indian financial and foreign exchange scenes are worth monitoring. We believe that, despite the horrid COVID-19 pandemic still lashing India nowadays, this global healthcare crisis does not deter the South Asian country’s currency markets from moving forward as guided by the IMF.

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