Adequate foreign exchange reserves are very important for a healthy economy. It provides much-needed help to the economy in times of economic crisis to support imports. For the week ended 30 July 2021, the country’s foreign exchange reserves increased by $ 9.427 billion to a record level of $ 620.576 billion.

Hence the increase
According to the data released by the Reserve Bank of India (RBI), in the week ended July 23, 2021, it had declined by $ 1581 million to $ 611.149 billion. The increase in foreign currency assets (FCAs) has led to a rise in foreign exchange reserves. FCA rose by $8.596 billion to $576.224 billion. Foreign currency assets also include the effect of an increase or decrease in the value of other foreign currencies such as the euro, pound, and yen held in foreign exchange reserves.

Jump in gold reserves
During this period, the country’s gold reserves increased by $ 76 million and reached $ 37.644 billion. India’s foreign exchange reserves with the International Monetary Fund (IMF) increased by $ 6 million to $ 1.552 billion.

Know what is forex reserves
Foreign exchange reserves are used to pay off liabilities when needed. It consists of foreign currency assets, gold reserves, and other reserves in the IMF, of which foreign currency assets hold the largest share after gold.

Advantages of forex reserves
In 1991, the country had to pledge gold to raise money. Then India had to mortgage 47 tonnes of gold with England for just $ 400 million. But at the current level, India has enough reserves to cover imports for more than a year. That is, with this the import expenses of more than one year can be easily met, which is its biggest advantage. A country having good foreign exchange reserves attracts a good share of foreign trade and earns the trust of the trading partners. This may encourage global investors to invest more in the country. The government may also decide to urgently purchase essential military goods as there is sufficient foreign exchange available for payment. Additionally, foreign exchange reserves can play an effective role in reducing volatility in the foreign exchange market.