RBI’s forex asset basket widens amid uncertainty

Mumbai: The Reserve Bank of India (RBI) will explore portfolio diversification through new asset classes and new markets for managing foreign exchange reserves, the central bank has said.
In FY22, the RBI added 61.6 metric tons (MT) of gold, whereby its total gold holdings increased to 760 MT. The addition of gold, coupled with the increase in the value of the yellow metal, led to a 37% increase in the value of gold reserves from Rs 1.43 lakh crore in March 2021 to Rs 1, 96 lakh crore at the end of March this year.
In its annual report for FY22, the RBI said it had undertaken reserve diversification while adhering to the primary objectives of safety and liquidity. During the year, it also expanded the newly introduced foreign currency asset products.
The foreign currency assets (FCA) of the RBI include deposits with central banks, the Bank for International Settlements (BIS) and commercial banks abroad, investments in treasury bills and foreign securities and Special Drawings (SDRs) from the IMF.
Following the West’s freezing of Russia’s foreign exchange reserves, RBI Governor Shaktikanta Das had said that while he did not foresee a situation where India would face sanctions, every country should think about diversification.
According to the weekly change in foreign exchange reserve data, released separately by the RBI on Friday, India’s foreign exchange reserves increased by $4.2 billion to $597.5 billion during the week ended. May 20.
The increase was largely due to an increase in foreign currency assets (FCA), which rose $3.8 billion to $533 billion during the week. Gold reserves increased by $253 million to $40.8 billion. The increase in foreign exchange reserves takes into account the appreciation in the value of assets in currencies other than the dollar.
The RBI reiterated its plans for a Central Bank Digital Currency (CBDC) that would be consistent with its objectives of monetary policy, financial stability and the efficient functioning of monetary and payment systems. “The RBI proposes to adopt a graduated system for the introduction of CBDC, moving step-by-step through the proof-of-concept, pilots and launch stages,” the RBI said. Previously, the central bank said that one of the CBDC’s goals was to counter the risk of dollarization posed by stablecoins – cryptocurrencies with dollars as their underlying assets.
The RBI also aimed for cross-border pacts so that the reach of Indian payment systems, such as UPI, could be extended beyond Indian borders. “To facilitate cheaper cross-border payments, in September 2021, the RBI and the Monetary Authority of Singapore announced a project to link their rapid payment systems, namely, Unified Payments Interface and PayNow,” the RBI said.

About Rodney Fletcher

Check Also

South African rand strengthens in early trade as dollar retreats

The South African rand strengthened in early trading on Tuesday as the dollar fell in …