Monday, October 26, 2020
Home Column Economy will be stronger by increasing foreign currency reserves

Economy will be stronger by increasing foreign currency reserves

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The country’s foreign currency reserves rose by $1.10 billion to $414.88 billion on April 19, 2019, which is equivalent to Rs 28,758 billion. According to the Reserve Bank, foreign currency reserve is expressed in the dollar, but there is also the effect of fluctuation in the prices of international currencies like Pound Sterling, Yen, Euro, etc. In the same period, the country’s gold reserves stood at $ 23.30 billion, which is equivalent to Rs 1,611.9 billion. In the meantime, the country’s special drawing right (SDR) increased by $3.3 million to $1.45 billion, which is equal to Rs 101.1 billion.

Almost every country in the world has to keep foreign currency reserves to meet the needs of import because imports from other countries need to have stock of currencies such as dollar, yen, and euro. The Reserve Bank does manage the stock of foreign currencies. Typically, the exporters who bring foreign currency, their currency arrive in foreign currency stocks through banks’ channels.

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Investments in the stock market and the investments of foreign companies in India are also done in foreign currencies, because dollar, euro, yen are changed from the rupees, thereby increase the foreign exchange reserve. A major part of India’s foreign currency reserve is in US Dollar, however, it is also a significant part of other currencies such as euro, yen, etc.

Due to the decrease in the exchange rate of currencies, the foreign currency reserves either increases or decreases. In addition, every country has the right to take foreign currency from the International Monetary Fund (IMF) at the time of the crisis, which is known as the special drawing right (SDR).

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If the dollar comes in the country through investment, export, etc., there is an increase in foreign currency reserve, but if the dollar goes out of the country, it falls. Demand or supply of currency by the exporters or importers either reduce foreign currency reserves or increases. It also effects the movement of investment in the stock market.

If the foreign currency reserve decreases up to a certain limit, the domestic currency weakens in comparison to foreign currency. Foreign currency reserves are an important part of the country’s international investment position. Reserve Bank’s balance sheet includes foreign currency reserves as well as domestic debt. Increasing foreign currency reserves means that the export or investment is accelerating. With this increase, the domestic currency remains strong.

On the basis of the above development, it can be said that the increase in foreign currency is a positive sign for the development of the economy. If there is a similar increase in foreign currency reserves, then surely the growth rate of the country will increase in the coming days.

By Satish Singh


(Disclaimer: The opinions expressed within this article are the personal opinions of the author. The facts and opinions appearing in the article do not reflect the views of AFTERNOON VOICE and AFTERNOON VOICE does not assume any responsibility or liability for the same.)

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