RESERVE CURRENCY

RESERVE CURRENCY

TOPIC: Economy

Context- Following the financial crisis of 2008, the dollar’s share in trade and currency reserves has grown. The dollar is nowhere close to being dethroned as the world’s reserve currency.

Concept-

• According to the International Monetary Fund’s report : As of 2021, the dollar is used in close to 80 per cent of all cross-border financial transactions.

Foreign Exchange Reserves:

• Foreign exchange reserves are assets held on reserve by a central bank in foreign currencies, which can include bonds, treasury bills and other government securities.
• It needs to be noted that most foreign exchange reserves are held in US dollars.
• India’s Forex Reserve include:
  • Foreign Currency Assets
  • Gold reserves
  • Special Drawing Rights
  • Reserve position with the International Monetary Fund (IMF).
• Foreign Currency Assets:
  • FCAs are assets that are valued based on a currency other than the country’s own currency.
  • FCA is the largest component of the forex reserve. It is expressed in dollar terms.
  • The FCAs include the effect of appreciation or depreciation of non-US units like the euro, pound and yen held in the foreign exchange reserves.