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The Indian economy will become stronger by increased foreign currency reserves
The country's foreign currency reserves rose by $1.10 billion to $ 414.88 billion on April 19, 2019, which is equivalent to 28,758 billion rupees. According to the Reserve Bank, foreign currency reserve is expressed in 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 101.1 billion rupees.

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 stock of foreign currencies. Typically, the exporters who bring foreign currency, their currency arrive in foreign currency stocks through banks' channels.

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 (IIMF) at the time of the crisis, which is known as special drawing right (SDR).

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 reduces foreign currency reserves, or increases. It also affects from the movement of investment in the stock market.

If 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 the foreign currency reserves means that the export or investment is accelerating. With this increase, the domestic currency remains strong.

On the basis of 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.

About the author: Satish Singh is currently working as Chief Manager in State Bank of India's Economic Research Department, Corporate Centre, Mumbai, and has been writing mainly on financial and banking topics for the last 10 years.

Editorial NOTE: This article is categorized under Opinion Section. The views expressed in this article are solely those of the author and do not necessarily represent the views of In case you have a opposing view, please click here to share the same in the comments section.
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