India’s Foreign Exchange Reserve Reaches a Record High

The Reserve Bank of India was notified on 1 September 2021 regarding the general allocation of Special Drawing Rights (SDR) by the International Monetary Fund (IMF). It says that the IMF has allocated SDR 12.57 billion (approximately USD 19.4 billion, the latest exchange rate) to India on 23 August 2021. 

The IMF’s Board of Governors has approved a general allocation of approximately SDR 456 billion on 2 August 2021. India’s share is SDR 12.57 billion, which has increased the country’s foreign reserves to a lifetime high of USD 6,33.558 billion. 

SDRs are assets, and five currencies determine their value. They are the US dollar, euro, yuan, yen and the UK pound. In case of a financial crisis, a low-income country can dip into its savings made financially resilient by adding SDRs into the country’s international reserves. SDRs are accounting units for transactions with the member countries.

It adds to a country’s reserves using the collaboration among 190 countries. The allocation is done based on each member country’s proportion of existing quotas in the fund. In the present day, they have been used to aid low-income countries to provide liquidity support for healthcare, support to vulnerable populations and recovery from the effects of the pandemic. 

It is the third time in history that the IMF has announced a general SDR allocation. The previous periods have been 1970-72, 1979-81 and the latest in 2021. The general allocation of 2021 has also been the largest SDR allocation in the history of SDR allocation by the IMF. 

For any clarifications/feedback on the topic, please contact the writer at jyotsna.singh@cleartax.in