As per the latest notification by RBI, India’s Forex – at $493.48 billion – is at an all time high and near the half-trillion mark. India’s Forex bolstered due to low import bills and cheap oil. India has been placed among the top 5 Forex holders.
Crux of the Matter
Foreign Exchange Reserve Foreign Exchange Reserve is the foreign currency held by a government or the central bank. It consists of hard currencies (USD, Euros, Pounds, Swiss Franc, etc.), treasury bills, bonds, bank deposits, banknotes, government securities, and gold. Moreover, the central bank focuses on building up a diverse forex portfolio of foreign currencies and financial instruments in case any economy falls or a product fails. Without foreign reserves, the country may be unable to pay bills for critical imports. Historically, the highest forex reserves have been held by China in 2014 at $3.84 trillion. The following factors may have contributed to the rise in India’s Forex: – increase in FDI – net inflow of funds by FPIs – sharp decline in import expenditure – sharp decline in global crude oil prices
Forex v/s Rupee Higher Forex generally indicates a strong local currency value. In India’s case a stronger rupee. However, Rupee has been the worst performer in Asia in the last 3 months. And RBI does not seem to be giving Rupee a free run with the rise in Forex. Analysts say it could be because: – RBI is guarding against credit downgrade – RBI sees this inflow as temporary – RBI can transfer higher surplus to the govt
Blast From The Past – 1991 Crisis Before the era of liberalization in the year 1991, India was in a very critical situation when its Forex reserves depleted to $1.2 billion. This amount was only enough to imports essentials for 3 weeks in the country. Gulf war had also had an effect on the Indian Economy. At a time when India was on the verge of its first default, it borrowed a loan from IMF and deposited as much as 67 tonnes of its gold with various banks. The government later adopted Liberalization, Privatization, and Globalization reforms in 1991 and opened the Indian economy.
Curiopedia
The Bretton Woods system was the first example of a fully negotiated monetary order intended to govern monetary relations among independent states. The chief features of the Bretton Woods system were an obligation for each country to adopt a monetary policy that maintained its external exchange rates within 1 percent by tying its currency to gold and the ability of the IMF to bridge temporary imbalances of payments. The system was established after the 1944 Bretton Woods Agreement.
In 1971 the Bretton Woods Agreement broke down and the modern foreign currency exchange was born. From there began the history of the Forex market, as we know it today. Currency trading rose from $70 billion a day in the 1980s to $1.5 trillion daily only 20 years later.
Alex. Brown & Sons was the first investment bank in the United States, founded by Alexander Brown in 1800 in Baltimore, Maryland. Alex. Brown & Sons traded foreign currencies around 1850 and was also the leading currency trader in the USA.
Curated Coverage
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