Context: According to the World Gold Council, the Reserve Bank of India (RBI) added 8 tonnes of gold to its reserves in November, 2024. In 2024 Central banks, mostly from the emerging markets, were keen gold buyers, driven by the need for a stable and secure asset amid global economic uncertainties.
Relevance of the Topic: Prelims: Key facts about RBI’s Foreign Exchange Reserves, World Gold Council
Details about Forex Reserves
- Meaning: Assets which are readily available to the RBI for:
- financing Balance of Payments (Meeting shortfall in BoP).
- Intervention in the forex market to check exchange rate volatility (i.e., to sell Dollars to check Rupee Depreciation).
- How does RBI Build Forex Reserves?
- In the event of surplus in the BoP, the RBI purchases the surplus dollars from the market (Authorised Dealers) and builds Forex reserves.
- Forex reserves accrete when there is positive BoP, while negative BoP may deplete the forex reserves.
- Legal Framework: In India, the Reserve Bank of India Act 1934 enables the RBI to act as the Custodian of Forex Reserves.
What are the components of Forex Reserves?
- Foreign Exchange Assets: Foreign Currency, Foreign G-Secs, Deposits with other Central Banks, Deposits with Overseas Branches of Commercial Banks.
- Monetary Gold: Gold with the RBI as part of Forex Reserves.
- Special Drawing Rights (SDRs): International Reserve Asset of the International Monetary Fund (IMF).
- Reserve Position in the International Monetary Fund (IMF).
Adequacy of Forex Reserves:
- Import Cover: Number of months of imports that could be paid for by Forex reserves. In India, it is presently around 9-10 months.
- Greenspan-Guidotti rule: Forex Reserves should be sufficient to pay the short-term External Debt.
About World Gold Council (WGC):
- WGC is a membership organisation that champions the role gold plays as a strategic asset, shaping the future of a responsible and accessible gold supply chain.
- It is a non-profit association of the world's leading gold producers.
- Formation: WGC was formed in 1987 by some of the world’s most forward-thinking mining companies.
- Headquarters: London, United Kingdom.
- Governance:
- WGC is governed by Board of Directors, comprised of:
- member company representatives (Chairperson or Chief Executive Officer) and
- World Gold Council’s Chief Executive Officer.
- The Board has a fiduciary responsibility to all Members in ensuring that the World Gold Council fulfills its mission and objectives.
- WGC is governed by Board of Directors, comprised of:
- It aims to maximise the industry's potential growth by monitoring and defending existing gold consumption.
- The WGC is also the global authority on gold, and they offer comprehensive analyses of the industry.
- The WGC was the creator of the first gold exchange-traded fund.