India’s Forex Reserves Will Rise Sharply This Week

Sep 1 , 2021

When the Reserve Bank of India announces its foreign exchange reserves statistics on Friday, India's foreign exchange reserves will climb dramatically. Soon the International Monetary Fund (IMF) will provide India a Special Drawing Rights (SDR) allocation of 12.57 billion, which is around $ 17.86 billion.

The SDR is the IMF's internal accounting unit for member nations, and it is a weighted average of a basket of currencies, including the US dollar, the Japanese yen, the British pound, the Euro, and the Chinese renminbi. The new SDR allocation follows the G-20's recent decision to expand the IMF's loan capacity by $650 billion to combat the economic consequences of the COVID-Crisis. India receives the funding in accordance to its 2.75 percent quota with the IMF.

As of August 23, 2021, India's total SDR holdings were SDR 13.66 billion (equal to roughly USD 19.41 billion at the current exchange rate). According to a Reserve Bank statement, this rise in SDR holdings will be reported in the Foreign Exchange Reserves (FER) figures for the week ending August 27, 2021. As of August 20, India's reserves were $616.9 billion.

The central bank's cost of keeping reserves may be reduced as a result of the greater allocation of SDR. According to the IMF, an SDR allocation is a method of boosting Fund member nations' foreign exchange reserves and helping them to minimize their reliance on more expensive domestic or external loans for reserve accumulation.

The International Monetary Fund (IMF) is an international financial institution, headquartered in Washington, D.C., consisting of 190 countries working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world while periodically depending on the World Bank for its resources. Formed in 1944, started in 27 December 1945, at the Bretton Woods Conference primarily by the ideas of Harry Dexter White and John Maynard Keynes.