Perspective: India’s Forex Reserves Hit Record High | 20 June, 2024
Summary
TLDRIn this episode of Sunset TV's 'Perspective,' host Tinaa discusses India's foreign exchange reserves, which recently reached a record high of over $655 billion. The conversation delves into the significance of these reserves for economic safety and liquidity, with insights from Professor Charan Singh and Professor Manoj Pant. They explain the purpose of reserves, the impact of currency valuation on reserve size, and the Reserve Bank of India's role in managing the rupee's exchange rate to support exports and maintain economic stability.
Takeaways
- 📈 India's foreign exchange reserves reached a new lifetime high of over $655 billion during the week ending June 7th, 2024.
- 🏦 The largest component of Forex reserves, Foreign Currency Assets (FCA), increased by $3.77 billion to $57,633 billion.
- 📊 Gold reserves in India rose by $481 million to $56.98 billion, contributing to the overall increase in reserves.
- 💰 Special Drawing Rights (SDRs) and India's reserve position with the IMF also saw increases, by $43 million and $10 million, respectively.
- 💡 The significance of foreign exchange reserves lies in their role as a 'safety wall' for a country's economy, providing a buffer against economic shocks.
- 🌐 The primary purpose of Forex reserves is safety, ensuring a country can cover its import needs even if the export market dries up.
- 📉 Historically, India's Forex reserves suffered a severe jolt in 1991, leading to a focus on maintaining at least 12 months of import cover.
- 🔄 The composition of Forex reserves can include various currencies and assets, depending on trade patterns and international transactions.
- 🌍 The international market views a country's Forex reserves as an indicator of its economic health and stability.
- 🤔 There is a tradeoff between maintaining a high level of reserves for safety and the costs associated with not deploying these assets for returns.
- 🛑 The RBI intervenes in the foreign exchange market to manage the volatility of the rupee against other currencies, aiming to prevent sharp fluctuations that could impact exports and imports.
Q & A
What is the significance of India's foreign exchange reserves reaching a new lifetime high?
-India's foreign exchange reserves reaching a new lifetime high signifies the country's economic strength, safety, and liquidity, which can be used to support the economy during times of crisis and also to stabilize the currency in the international market.
What are the main components of India's foreign exchange reserves?
-The main components of India's foreign exchange reserves include foreign currency assets, gold reserves, special drawing rights (SDRs), and India's reserve position with the IMF.
Why are foreign exchange reserves important for a country's economy?
-Foreign exchange reserves are important for a country's economy as they serve as a safety wall, providing liquidity to meet essential imports and payments in foreign currencies, and also to stabilize the exchange rate.
How did the 1991 economic crisis impact India's approach to foreign exchange reserves?
-The 1991 economic crisis, which left India with only 14 days of import cover, led to a significant shift in policy. Since then, India has been building its reserves to ensure at least 12 months of import cover for economic safety and stability.
What is the role of the Reserve Bank of India (RBI) in managing the country's foreign exchange reserves?
-The RBI is responsible for managing the country's foreign exchange reserves, ensuring safety and liquidity, intervening in the foreign exchange market to stabilize the rupee's value, and maintaining an appropriate level of reserves for economic stability.
Why do countries with their own reserve currencies, like the US, still maintain foreign exchange reserves?
-Even countries with reserve currencies like the US maintain foreign exchange reserves for intervention purposes in their markets to control volatility and ensure stability in the foreign exchange market.
What is the impact of a country's foreign exchange reserves on its international image?
-A country's foreign exchange reserves can positively impact its international image by demonstrating its economic strength and ability to meet international obligations, thus attracting trade and investment.
How does the valuation of foreign exchange reserves affect the reported amount?
-The valuation of foreign exchange reserves can affect the reported amount due to changes in the value of the underlying currencies and assets. For example, if the dollar strengthens against other currencies, the reserves may appear to increase in value even without any new inflows.
What is the concept of 'import cover' in the context of foreign exchange reserves?
-Import cover refers to the number of months a country's foreign exchange reserves can cover its imports. It is an indicator of the country's ability to pay for essential imports in the event of a sudden stop in export earnings.
Why might a country intervene in the foreign exchange market to manage its currency's value?
-A country might intervene in the foreign exchange market to manage its currency's value to prevent excessive volatility, which can disrupt economic planning and trade, and to maintain a competitive exchange rate to support exports.
How does the composition of a country's foreign exchange reserves reflect its trade patterns?
-The composition of a country's foreign exchange reserves typically reflects its trade patterns, with a predominance of currencies from its major trading partners, ensuring the country has the necessary foreign currencies to conduct international transactions.
Outlines
📈 India's Foreign Exchange Reserves Reach Record High
The video script begins with an introduction to the topic of India's foreign exchange reserves, which have recently reached a new lifetime high of over $655 billion. The discussion focuses on the significance of this increase and its implications for India's economy. The show's host, Tinaa, welcomes two distinguished guests, Professor Charan Singh and Professor Manoj Pant, to delve deeper into the subject. The conversation highlights the different components of the reserves, such as foreign currency assets, gold reserves, special drawing rights (SDRs), and the reserve position with the IMF, each of which has seen an increase.
💡 Understanding the Importance of Foreign Exchange Reserves
In this segment, Professor Charan Singh explains the concept of foreign exchange reserves and their importance for a country like India. He emphasizes that these reserves act as a safety net for the economy, providing a buffer against external shocks and ensuring the country can meet its import needs. The discussion also touches on the historical context, such as the 1991 crisis, which led to a reevaluation of India's reserve management strategy. The goal of maintaining 12 months of import cover is mentioned, and the current status of India's reserves in relation to this benchmark is discussed.
🌐 Components and Role of Foreign Exchange Reserves
Professor Manoj Pant takes over to detail the components that make up India's foreign exchange reserves and the reasons why countries maintain such reserves. He clarifies that reserves are necessary for countries whose currencies are not accepted internationally for transactions. The role of reserves in ensuring the country can make payments in foreign currencies is highlighted, along with the purpose of maintaining the stability of the exchange rate. The segment also addresses the balance between safety, liquidity, and returns on reserves.
🔑 The Cost of Maintaining High Foreign Exchange Reserves
The conversation continues with an exploration of the costs associated with maintaining high levels of foreign exchange reserves. It is mentioned that while safety is a priority, there is a trade-off between the cost of holding reserves and the benefits they provide. The discussion points out that having excessive reserves can incur costs if the assets are not invested wisely, and the importance of striking a balance between having enough reserves for safety and not so much that it incurs unnecessary costs is emphasized.
🛣️ RBI's Intervention in the Foreign Exchange Market
This part of the script discusses the role of the Reserve Bank of India (RBI) in intervening in the foreign exchange market to manage the value of the rupee. The purpose of these interventions is to prevent sharp fluctuations in the exchange rate, which can impact trade and the economy. The speakers explain that a stable exchange rate is crucial for planning investments and exports, and that the RBI's actions aim to maintain this stability within a certain range.
🏦 International Implications and Reserve Management
The final paragraph delves into the international implications of a country's foreign exchange reserves and how they are managed. It touches on the guidelines provided by international organizations like the IMF and WTO regarding currency manipulation and the maintenance of reserves. The segment also highlights the importance of a diversified portfolio of foreign currency assets, which depends on a country's trade patterns and economic relationships.
📚 Conclusion and Invitation to Learn More
The script concludes with a summary of the insights provided by the two professors on the topic of foreign exchange reserves. The host expresses gratitude for the informative discussion and emphasizes the significance of understanding this complex subject. Viewers are encouraged to continue learning about the topic by watching more programs on Sunset TV and subscribing to their YouTube channel.
Mindmap
Keywords
💡Foreign Exchange Reserves
💡Forex Kitty
💡Foreign Currency Assets (FCA)
💡Gold Reserves
💡Special Drawing Rights (SDRs)
💡Reserve Position with the IMF
💡Import Cover
💡Economic Safety
💡Liquidity
💡Returns on Reserves
💡Intervention in Foreign Exchange Market
Highlights
India's foreign exchange reserves reached a new lifetime high of over $655 billion during the week ended June 7th.
The largest component of Forex reserves, Foreign Currency Assets (FCA), increased by $3.77 billion to $576.33 billion.
Gold reserves in India rose by $481 million to $56.98 billion.
Special Drawing Rights (SDRs) increased by $43 million to $18.16 billion.
India's Reserve Position with the IMF also increased by $10 million to $4.336 billion.
The rise in foreign exchange reserves is significant for the safety and liquidity of the Indian economy.
Foreign exchange reserves act as a safety wall for a country's economy and can be used for returns.
India's focus on building reserves stems from the 1991 economic crisis when it had only 14 days of import cover.
India's current import cover stands at 11 months, which is considered very healthy.
The composition of foreign exchange reserves includes foreign currency assets, gold, SDRs, and the reserve position with the IMF.
Countries with currencies not automatically accepted for international transactions need to maintain reserves.
The RBI intervenes in the foreign exchange market to maintain the stability of the rupee-dollar exchange rate.
A strong rupee can negatively impact exports by making them more expensive in the international market.
Maintaining a balance in foreign exchange reserves is crucial for a country's international standing and economic stability.
Higher reserves can indicate a country's strength to pay for imports and influence its international image.
China's large foreign exchange reserves have allowed it to pose as an international currency contender.
The composition of a country's foreign exchange reserves is kept secret to prevent market speculation.
Intervention in currency valuation to promote exports can be considered a trade restrictive practice by the WTO.
Transcripts
[Music]
namaskar viewers hello and welcome to
Sunset TV I am tinaa you're watching
perspective on the show today we're
going to talk about India's foreign
exchange reserves we jumped over 4
billion dollar to touch a new lifetime
high of more than $655 billion during
the week that ended 7th of June now as
per data released by The Reserve Bank of
India India's foreign currency assets
the FCA which formed the biggest
component of the Forex reserves Rose by
$3.77 3 billion to
57633 7 billion in the reported week
gold reserves Rose by $481 million to
56.98 billion the special drawing rights
which are called the sdrs were up $43
million to
$18.16 billion and India's Reserve
position with the IMF was also up $10
million to $ 4.33 6 billion in the
reporting week so how significant is
this rise in foreign exchange reserves
what do the increasing numbers in
India's Forex Kitty reflect about the
health of the Indian economy we'll talk
about this and much more in perspective
today with two distinguished guests who
join us on the program so let me first
introduce them to you delighted to have
with us Professor Charan singhh CEO egro
Foundation Professor Singh glad to have
you with us on the program today and
Professor Manoj pant former Vice
Chancellor Indian Institute of foreign
trade Professor pun pleasure to have you
with us on this edition of perspective
you know Foreign Exchange Reserve is not
a topic that we discuss with as much
prominence every day so and since we
have two professors joining us on the
program today let's begin by
understanding what really Forex Reserve
is how significant it is for a country
like India uh Professor Singh the first
question to you sir help us and our
viewers understand what are foreign
exchange reserves what is the purpose of
having such a reserve especially for a
country like India so firstly I must
mention this is a very important topic
and very timely to be discussing this
issue foreign exchange reserves actually
are sort of safety wall for any country
they serve their liquid assets and they
are used for safety of the economy and
they can also be used for some returns
in different parts of the world foreign
exchange reserves have been used very
differently for example in Singapore
theyve been mainly used as Sovereign
wealth funds and they're looking for
returns in our country that's not been
the case lots of work has been done I
myself written different set of Articles
at different points or what do foreign
exchange reserves really serve the
purpose for in our country the most
important function it serves is safety
so we are very careful as to what are
foreign exchange reserves are and why
did this happen why are we so
careful all started with the 1991 crisis
right in 1991 we were left with only 14
days of import cover what import cover
means I am importing as a country lots
of things every year do I have forign ex
change reserves to buy those Imports
suppose the export Market dries up can I
still buy those essential Imports of
food fuel now in
1991 with Russia coming up and there's a
breakdown there Middle East war was
there India's Foreign Exchange Reserve
suffered a severe jolt because
remittances sto we were only having 14
days of import since then the high level
committee on balance of payments chaired
by Dr C rangarajan and Dr yv R Who later
became the governor recommended we
should have at least 12 months of import
cover India has been very very fortunate
that all through that time from 93
onwards we started building our reserves
and we continued to have a import cover
of more than 12 months the in that Peak
we touched 17 months the figure that you
just just quoted we are still at 11
months of import cover just reported in
the uh speech by the governor of RBI
which is very V so the safety is the
most important thing along with safety
comes liquidity am I able to convert
those reserves into liquid assets as I
want and then returns is the last in our
case in this case I must mention one
speech given by Dr V
long time ago I think in 2008 where he
said when we are running such current
account
deficits building foreign exchange
reserves is a herculan task but we have
to maintain it we have to maintain it
from the angle of safety and liquidity
but we are not going to changee returns
out of it because we are doing this
saving from the deficit and the good
news is the good news is Professor that
this number has been on the rise for
quite some time now uh Professor pun to
you now you know even though I did put
out a few numbers that we got from the
RBI document talking about the different
components and the increase that they
have seen but it would be helpful for us
and our viewers if you could explain the
key components that form the Foreign
Exchange Reserve in
India well uh it's very simple there are
the foreign currency assets and they are
composed let me first go back a little
bit easier to understand and just to few
more things to what was mentioned by the
earlier speaker see why do countries
have Reserves at all do all countries
have reserves that's not true reserves
are only required by those countries
whose currency is not automatically
accepted as a means of payment
International transaction okay for
example if you buy oil in the World
Market we cannot pay in rupees we have
to pay in
dollars so it's required as a reserve
mainly for those countries who are not
those whose currencies are acceptable
ordinarily as a means of Exchange in
world markets for any transacts so
Germany doesn't need to keep reserves
technically the USA does not need
reserves the UK does not need reserves
because they have pounds and they have
to make payments they can always print
their pounds and send them so we need we
have a second problem apart from the
safety issue we have a problem that we
need to make payments in foreign
currency
which we do not have which you do not
normally have now if your trade is
always in Surplus that mean you
exporting more than you're earning then
you will always have an inflow of
dollars or some fign C which would pay
for our transaction that's not true
India generally had a deficit in trade
bance so we need to keep foreign
currency in our reserves to pay for
those bance that's really what it is
very simple if you buy something you got
to pay for it how will you pay the way
we pay through the whatever we have in
our foreign culture res that's simple
way of understanding now as the previous
speaker mentioned the it is felt that
you should have 12 months Imports worth
in your reserves so that you won't run
out of payment possibilities in the
World Market that is as far as holding
reserves is concerned now what is safe
there is no answer on this is it 12
months is it 10 months it is 9 months we
are maintaining 12 months but where we
are today we have in a different
situation we are not building Reserve
only for the purpose of safety into uh
in paying transactions we also building
reserves because sometimes the RBI sells
dollars or buys up dollars simply to
make sure that the rupe exchange rate
does not go herewhere we also maintain
the rupe dollar rate at a certain rate
so sometimes the buying and selling of a
foreign exchange which could be dollars
or some other currencies done in order
to keep the rate at which rupe can be
exchanged for dollars and vice versa
fixed in a certain band so two purposes
one to make sure we never run out of
reserves when we have to make a payment
the rupee is not accepted as means of
payment and second to make sure that the
rupe and dollar rate remains in the
certain range which the RBI tries to fix
so these two determines the reasons why
the reserves are
kept okay uh Professor Singh I'll go
back to you and try and understand uh
what is the significant amount am that
should be good enough for a country like
India currently our numbers have been a
lifetime High what the RBI has achieved
is certainly orur well and also if you
could help us understand what it means
in the international market so for a
country to have a huge amount of uh
Reserve how does the International
Market or what is the image of the
country in the international market if I
put it like
that absolutely I think very well uh
very well put the question questions the
international rating of the
country is also dependent on the
reserves it has according to the high
level committee on balance of payments
which I just mentioned in my previous
intervention they had mentioned 12
months of import cover until then the
wisdom in the world was 3 months of
import cover is sufficient Asian crisis
took place in 1997 98 and you know the
Asian tigers were really washed out had
they had those enough import cover or
foreign exchange reserves probably they
would not have met that fate Argentina
was in a big crisis by
1999 when Argentina went into crisis
Alan Greenspan and GTI the Finance
Minister of Argentina they came out with
a formula after lots of sweating and
lots of hard work and lots of research
and they said wow the safest import
cover should be for 12 months so
therefore if you ask a question
now the any Economist who has been
working on Foreign Exchange reserves
would tell you that 12 months of import
cover is the safest now the question is
there are multilateral agencies like the
IMF what are they there for if a country
is getting into a crisis that's exactly
what they're meant for to give you
support and to give you Aid immediately
provide you with foreign exchange
reserves when required so now despite
that umbrella that the IMF is expected
to provide you saw what happened just a
few months back in Sri Lanka so
therefore the Prudence is that one
country especially a country like India
which is is not having a surplus current
account def Surplus current account
should maintain about a 12 month import
C now when you say that we are on a
record high of course we are on a record
high when we compute it in terms of
amount but when you compare it with an
indicator and right indicator for this
is the Imports we are around 11 months
which is very very good but as I
mentioned to you at one point we were 17
months now now keeping an import cover
of that high also has a cost because the
components of Foreign Exchange reserves
are foreign currency assets right now if
those foreign currency assets are not
deployed somewhere and they're just kept
in the for the sake of liquidity and
safety there are cost to the ex cheer so
therefore the Prudence is that we
maintain it we should not have over
Surplus and we don't earn any interest
on it and we should not have too low
that in case there is a crisis we do not
meet we do not reach the same position
as that happened in 19 Professor does
that mean that higher the reserves
higher will be the cost that the country
will have to bear no not yes there's a
tradeoff there's a tradeoff the tradeoff
is between cost and
safety the wisdom is especially after
the high level Committee of rangarajan
and RI in our country all the governors
have stuck to that wisdom the wisdom is
keep about one year of import cover but
if you have above it then there's an
additional cost and therefore most of
the governors will try to keep it in the
range of 11 months to 13 months now
Professor pun was very right countries
like the US and UK which is a reserve
currency they don't need to keep
reserves America doesn't keep foreign
exchange reserves the foreign exchange
reserves that are required for
intervention to control the volatility
in the market Foreign Exchange Market is
also there but those volumes are very
very small to that extent these
countries though they claim their Flo
floating exchange rates they also
maintain reserves you'll be surprised
even Germany maintains reserve and that
is for intervention purposes in their
markets now most of these countries will
tell you that they have a floating
exchange rate but you'll be surprised
there's a study done at
with professor rof and rehard who said
most of these countries who claim they
have a floating exchange rate generally
do not have a floating exchange rate
they intervene in the market and to
intervene in the market they need
Reserve so Professor pun is very right
that you need the reserve for even
intervention okay Professor P you wanted
to make a point on the cost Factor sir
yeah it seems like
this again as was said by speaker that
you know we
you know whether it's 11 month or 12
month these are all matters of you know
estimates there's no other way you can
do this in this market now very often
our reserves change not because we have
actually got an inflow of
Furnishing but simply because there's a
valuation change you know sometimes you
know there's also how do you value when
I say my reserves are $600 billion how
did I value it it is not as if you have
600 billion of dollar notes in your
country sometimes times when the
Dollar's value goes up or the rupees
value goes down your reserves tend to
escalate by what is called the valuation
sometimes valuation itself may lead to
an increase reserves sometimes because
of inflow of reserves and sometimes it's
because the RBI has intervened to make
sure that the rupee dollar rate does not
become out of out of seat now which
which is the purpose for which RBI does
it is never known it's not supposed to
be known then people will start
speculating on the Foreign Exchange
Market but I personally believe at the
moment intervention The the Reserve you
see changing is not because we suddenly
started exporting more which is not true
because we still have a deficit or
because we are worried about something
else but mainly because the dollar the
the RBI is making sure that the rupe
dollar rate neither goes up too much nor
goes down so they periodically intervene
to make sure that the rupe dollar rup
rate remains around the 3 rupees per
dollar rate so if if suddenly you find
that the market is such it's showing
that the Rupees is now going up to let's
say 85 or 86 the RBI will quickly step
in and release dollars to bring down the
rate and you'll see this coming up in
the RBI account so it's difficult to say
how much of it they are doing because
they want to prevent uh you know the
rupe dollar it from changing and how
much they're doing because they're
trying to build up reserves from the
security aspect as mentioned very to say
actually you should not be able to know
this if you know this then people start
speculating my own if I may ask
Professor P related question the fact
that the RBI has to intervene and ensure
that the value of the rupee does not go
up sharply if I may ask from Layman's
perspective isn't it good that the value
of rupee goes up why why why is it
important for the RBI to intervene what
happens if if the value of the rupe goes
up sharply if you could help us explain
from the Traders Point of View you want
to export right if your rupe become
let's say 40 rupees per dollar that mean
the dollar price of everything that
you're sending has gone up your export
will fall so you don't want right now
the rupe to go to 440 rupees or dollar
as compared to 83 because then
everything valued in dollars the dollar
price of every commodity goes up right
suppose something cost 100 rupees or
let's say 80 rupees right it'll cost $1
in the F Market if you let your rupe for
whatever reason or force it to go up to
40 rupees then every 80 rupe will cost
$2 so the prices for the buyers that is
prices for the exporters have gone up
and your exports have fall so the idea
is to maintain a balance to make sure
that exporters are not hurt so a rising
rupe will sound very good nationally
will sound very emotionally very nice it
may be a very bad thing from the export
point of okay uh Singh so so the fact
that there are multiple benefits of
having a foreign Exchange Reserve uh
which which are the countries which do
maintain such a reserve and in India we
we often refer to the Foreign Exchange
Reserve as the health meter of an of the
economy so help us understand which are
the countries which do maintain this
reserve and and whether it is the right
indicator to measure the health of any
economy it's I don't
think okay sorry go ahead go ahead go
ahead I'll come back to you Prof let let
me let me go back uh step and explain
you know I've worked in the Reserve Bank
for about 25 years and uh have been
associated with foreign exchange
reserves and you might probably see one
of my papers in APW which is still
quoted The Reserve Bank is very very
clear I stated many many times that they
do not changee an exchange rate they
change they are worried about the
volatility in the exchange rate so
whenever is Bank intervenes it
intervenes to contain the volatility now
your question if there is a huge
volatility then what happens to the
economy that is where I think Professor
pun has given the right absolutely
correct explanation that suppose I am
buying something at at 80 rupees today
and the price Falls to 40 rupees
tomorrow and day after Rises to 120 how
do I plan my investment how do I plan my
production how do I plan my supply all
that is very confusing that is one of
the reasons why many countries still say
that we would like to have a fixed
exchange rate so at least there is
stability in the exchange but fixed
exchange rate has its own demands and
most of the countries do not in the
world want to have it so floating
exchange rate was the vi media in the
floating exchange rate while you are not
chasing the rate you are chasing the
volatility the ality is within a day
within a week within a month within two
three months price fluctuates just as an
illustration you know what happens to
the prices of Bitcoin and the whole
world is worried about it similarly to
contain that volatility in the exchange
rate The Reserve Bank intervenes for
that matter as I mentioned Harvard
professor rof and rainhard both of them
wrote a beautiful paper saying most
countries say that they are purely
floating they don't intervene but all of
them intervene now that comes to your
question when you say how many countries
keep reserves if most of the countries
are intervening in the Foreign Exchange
Market they will keep
reserves right right now which of the
country may not be very keen to keep
reserves those are the reserve currency
US dollar to some extent uh Euro uh but
please remember euro is the common
currency
but when Germany is exporting and
importing Germany has to now pay for it
now that also brings me to a very good
question which we ignored you asked what
are the components of foreign currency
assets if I'm dealing in Commodities
which are produced in advanced countries
then I have to pay them in those
currencies so the composition of foreign
exchange foreign currency assets will be
generally some pound sterling some euros
some Japanese Yen some US Dollars some
Canadian dollars depending on with whom
I'ma trading and what is the volume of
my trading so I think foreign exchange
reserves also helps
globally intervention but it also helps
International rating agencies to know
that you have the strength to pay for
your Imports now does it help yes it
does help that is why countries like
like China at one point of Time Out of1
trillion of Foreign Exchange reserves
was holding 4 trillion dollar that gave
China the strength then an obvious
question is why did China do it China
did it by as the wisdom goes of that
point of time that I was referring to
from 2009 to 2012 they were and their
currency manipulation had started much
earlier so when Professor pun said do I
need a strong foreign exchange rate it
may impact my exports on the contrary
what China did it made its exchange rate
rather
depreciate deliberately and kept it at a
low rate so it could accumulate huge
amount of export earnings with the
Surplus on their current account and
that is why they had such a high foreign
exchange reserves was it needed at that
point of time they felt it is needed
because when they were growing they felt
to contain the dollar they needed it now
just imagine when they have such huge
Reserve they want to now become an
international currency and they are
saying that we can intervene in the
global markets we can influence US
Dollars we can also provide you in case
you need support in any currency so
therefore now they are posing themselves
to serve as an international reserves of
course it's not going to happen that
fast and they will not turn out to be an
international Reserve currency but the
point I'm trying to drive at is the
portfolio of Foreign Exchange reserves
will generally be Diversified depending
on your trade pattern and most of these
countries will have US dollar domination
in their foreign exchang but but
Professor do we do we have uh uh any
guidelines uh from the IMF on Foreign
Exchange Reserve management since it's
being done by a lot of countries not
really but we do have some guidelines
now in the WTO you know as the speaker
was mentioning profess mentioning you
know China was driving its uh its yen to
a very low strength right that mean
driving it down against the dollar to
promote his exports now today if if
there's intervent if there's evidence
that you're using intervention in order
to keep your currency artificially low
to promote exports that can be ConEd a
pre a trade restrictive practice in the
WTO and you can take retaliation against
a country which is trying to keep his
currency too low so idea is only every
country agrees that they you know R by
the way
International you know Banks always talk
to each other also idea is keep it
within the flex the exchange it
fluctuation should be within a band
normally is 2 to 3% maybe maximum 5%
internationally if you let your currency
go out beyond the band for very long
time in either direction it can be
considered evidence of manipulation of
currency to promote exports or Imports
either way and that case that can be
considered restrictive practice in the
WTO so the idea is keep don't let your
currency be be determined by normal
trade transactions don't try to push
exports beyond what is natural or uh
keep Imports away beyond what is natural
that's why the checks and balances will
have to be required so one thing
remember the reserves composition is a
secret of the RB it has to be if I know
the composition reserves and the RBI
keeps the formula I can start
speculating on within currencies so that
is always a formula which is kept secret
sure sure
Prof right very very very engaging 30
minutes with the two professors on
understanding what really Foreign
Exchange Reserve is the purpose the
challenges also uh because of the
fluctuations in the markets which impact
but uh uh it's it's been very
enlightening 30 minutes discussing all
of these aspects relating to the Foreign
Exchange Reserve and how significant uh
the rising numbers are for India as a
country because they also help attract
trade and and maintain that image of the
country in the international market
thank you once again to both our guests
for joining us on this edition of
perspective and helping us understand
all about this very very uh difficult
topic so and thank you very much to you
viewers for your time as well I'll see
you same time tomorrow now take good
care of yourselves and keep watching
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