Description
This is a PPT describing about Utilization of Foreign Reserves in India.
Utilization of Foreign Exchange Reserves in INDIA
vis-à-vis
International Experience
Agenda
?
?
Concept : FOREX RESERVES
Trend & Growth : Indian Context Utilization of Forex Reserves International Experience
?
?
?
Conclusion
Foreign Exchange Reserves
Definition
“Those external assets that are readily available to and controlled by monetary authorities for direct financing of payment imbalance, for indirectly regulating the magnitude of such imbalances through intervention in exchange markets to effect the currency exchange , and /or for other purposes”
Why Hold Forex Reserves ?
? ?
Intervention in the FX market Execution of payments for goods and services for the country Granting of emergency liquidity assistance to sectors of economy
?
?
Underpinning the investor confidence in the country’s ability to meets its FX commitments
Execution of payments for the government Support of domestic monetary policy liquidity management
? ?
Components Of FOREX
?
Major Constituents
• Foreign Currency Assets(FCA) • Special Drawing Rights(SDR) • Gold • Reserve Tranche Position(RTP)
Foreign Currency Assets (FCA)
Components :
• Foreign Direct Investment • Portfolio Investment • External Assistance • External Commercial Borrowings
Components Contd.
• Short Term Credits
• NRI Deposits • Rupee Debt Service • Other Capital
Special Drawing Rights (SDR)
• The SDR is an international reserve asset created by the IMF in 1969. • SDR’s is a potential claim on the freely usable currencies of IMF members
Holders of SDRs can obtain these currencies in exchange for their SDRs in two ways: i. Voluntary exchanges between members ii. IMF designating members
• SDRs are allocated to member countries in proportion to their IMF quotas. • Its value is based on a basket of key international currencies.
SDR FACTSHEET
January 2006 - December 2010
ISO
USD EUR
CURRENCY US Dollar
WEIGHT
44 % 34 %
VALUE $ 0.6320
European Euros
Japanese Yen
€ 0.4100
¥ 18.4
JPY GBP
11 % 11 %
British Pound
£ 0.0903
GOLD Reserves
• Gold reserves (or gold holdings) are held by central banks as a store of value.
World official gold holding (September 2008)[6] Gold
Gold's share of total forex reserves (%)[6]
Rank 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
Country/Organization
(tonnes)
World Eurozone (incl. ECB) USA Germany International Monetary Fund
29,783.90 10,911.40 8,133.50 3,413.10 3,217.30
58.00% 77.30% 66.40% -
France Italy Switzerland Japan SPDR Gold Trust (a Gold exchange-traded fund)
Netherlands People's Republic of China European Central Bank Russia Republic of China (Taiwan) Portugal India Venezuela
2,540.90 2,451.80 1,064.10 765.2
745.2[7] 621.4 600 533.6 472.6 422.4 382.5 357.7 356.8
57.80% 67.00% 38.10% 2.10%
59.90% 0.90% 23.00% 2.10% 3.80% 85.50% 3.10% 29.30%
Reserve Tranche Position(RTP)
• Proportion of the required quota of currency that each IMF member country must provide to the IMF. • The RTP of the quota can be accessed by the member nation at any time with out any obligation.
• IMF denominates its members' quotas in terms of special drawing rights (SDRs), which is essentially a specified basket of major international currencies.
Trend & Growth : Indian Story
• Rise In INDIAN FOREX RESERVES after 1991 : Significant •Major Contributors • CAPITAL INFLOWS ? Foreign Direct Investment ? Portfolio Investment ? NRI Deposits ? External Borrowings
Cause for Accretion of Reserves
?
Indian exports – merchandise exports growing at 18percent per annum
Repatriation of money from abroad
?
?
? ? ?
Interest rate differential.
Rise of IT industry Tourism Millennium bonds issued by GOI
INDIAS FOREIGN EXCHANGE RESERVES OVER THE YEARS
350000
TOTAL RESERVES
300000
FOREIGN CURRENCY ASSETS GOLD
250000
RESERVE POSITION IN IMF
SPECIAL DRAWING RIGHTS
US MILLION $
200000
150000
100000
50000
0
US MILLION $
50000 100000 200000 250000 300000 350000
150000
0 06/01/2006 06/02/2006 06/03/2006 06/04/2006 06/05/2006 06/06/2006 06/07/2006 06/08/2006 06/09/2006 06/10/2006
06/11/2006
06/12/2006 06/01/2007 06/02/2007 06/03/2007 06/04/2007 06/05/2007 06/06/2007 06/07/2007 06/08/2007 06/09/2007 06/10/2007 06/11/2007 06/12/2007 06/01/2008 06/02/2008 06/03/2008
GOLD
06/04/2008
06/05/2008 06/06/2008 06/07/2008 06/08/2008 06/09/2008 06/10/2008
INDIAS FOREIGN EXCHANGE RESERVES 2007 - 2008
TOTAL RESERVES
SPECIAL DRAWING RIGHTS
FOREIGN CURRENCY ASSETS
RESERVE POSITION IN IMF
100 90 80 70 PERCENTAGE 60 50 40
INDIAS FOREIGN EXCHANGE RESERVES OVER THE YEARS
FOREIGN CURRENCY ASSETS GOLD RESERVE POSITION IN IMF SPECIAL DRAWING RIGHTS
30 20 10 0
CAPITAL FLOWS
35000
Portfolio Investment
30000
25000
Foreign Direct Investment External Assistance
US MILLION $
20000
15000
10000
5000
0 1995-96 2001-02 2002-03 2003-04 2004-05 2005-06 R 2006-07 PR 2007-08 P
-5000
CAPITAL FLOWS
25000
20000
External Commercial Borrowings Short term Credits
15000
NRI Deposits
US MILLION $
10000
5000
0 1995-96 2001-02 2002-03 2003-04 2004-05 2005-06 R 2006-07 PR 2007-08 P
-5000
Adequacy
Ability to absorb external shocks
•Traditional approach 3 months of import bill
•Alternative measures of adequacy (C.Rangarajan) 1. Short term external debts 2. 100% of External liability
IMPORT COVER
18.00 16.00
14.00
12.00
MONTHS
10.00
8.00
6.00
4.00
2.00
0.00
SINGAPORE
KOREA
ISRAEL
INDIA
EXTERNAL LIABILITIES COVERAGE
300,000
RESERVES, 252,883 250,000 EXTERNAL LIABILITY, 224000
200,000
USMILLION $
150,000
100,000 NET EXTERNAL LIABILITY, 73900
50,000
0 1
FOREX AS RATIO OF GDP
120
100
80
PERCENTAGE
60
40
20
0
SINGAPORE
KOREA
ISRAEL
INDIA
CHINA
UTILIZATION AS ON OCTOBER 2008
250,000.00
200,000.00
US MILLION $
150,000.00
100,000.00
Singapore Korea Israel India
50,000.00
0.00 Securities Other national central banks, BIS and IMF Domestic Banks Foreign Banks IMF reserve position SDRs Gold
UTILISATION
PERCENTAGE UTILIZATION AS ON OCTOBER 2008
100
90
80
70
PERCENTAGE
60
50
40
30
Singapore Korea Israel India
20
10
0 Securities Other national Domestic Banks Foreign Banks central banks, BIS and IMF IMF reserve position SDRs Gold
UTILISATION
Factors affecting India in forex usage
Legal restrictions by RBI act 1934
Investments can be done only in:
1.
Deposits with other central banks and Bank for International Settlements(BIS).
2.
3.
Deposits with foreign commercial banks
Debt instruments representing sovereign/sovereignguaranteed liability.
4.
Other instruments/institutions as approved by the Central Board of RBI
Factors affecting India in FOREX usage (contd.)
Risk management
1. 2.
i.
Credit risk Market risk currency risk ii. Interest rate risk Liquidity risk Operational risk and control system.
3. 4.
Forex utilization by other countries
Singapore 1981: Government of Singapore Investment corporation. Present value of assets 330 billion USD China 2007: Established China Investment corporation to manage 200 billion USD forex reserves.
Korea:
2005: Established Korea Investment corporation with 17 billion USD.
Steps to be taken.
?
? ?
Reforms in existing laws
Investment in infrastructure Short term Private investment up to 25% of existing reserves Current Forex reserves exceeds 100% external liability. Invest the surplus amount.
?
THANK YOU
doc_490317557.pptx
This is a PPT describing about Utilization of Foreign Reserves in India.
Utilization of Foreign Exchange Reserves in INDIA
vis-à-vis
International Experience
Agenda
?
?
Concept : FOREX RESERVES
Trend & Growth : Indian Context Utilization of Forex Reserves International Experience
?
?
?
Conclusion
Foreign Exchange Reserves
Definition
“Those external assets that are readily available to and controlled by monetary authorities for direct financing of payment imbalance, for indirectly regulating the magnitude of such imbalances through intervention in exchange markets to effect the currency exchange , and /or for other purposes”
Why Hold Forex Reserves ?
? ?
Intervention in the FX market Execution of payments for goods and services for the country Granting of emergency liquidity assistance to sectors of economy
?
?
Underpinning the investor confidence in the country’s ability to meets its FX commitments
Execution of payments for the government Support of domestic monetary policy liquidity management
? ?
Components Of FOREX
?
Major Constituents
• Foreign Currency Assets(FCA) • Special Drawing Rights(SDR) • Gold • Reserve Tranche Position(RTP)
Foreign Currency Assets (FCA)
Components :
• Foreign Direct Investment • Portfolio Investment • External Assistance • External Commercial Borrowings
Components Contd.
• Short Term Credits
• NRI Deposits • Rupee Debt Service • Other Capital
Special Drawing Rights (SDR)
• The SDR is an international reserve asset created by the IMF in 1969. • SDR’s is a potential claim on the freely usable currencies of IMF members
Holders of SDRs can obtain these currencies in exchange for their SDRs in two ways: i. Voluntary exchanges between members ii. IMF designating members
• SDRs are allocated to member countries in proportion to their IMF quotas. • Its value is based on a basket of key international currencies.
SDR FACTSHEET
January 2006 - December 2010
ISO
USD EUR
CURRENCY US Dollar
WEIGHT
44 % 34 %
VALUE $ 0.6320
European Euros
Japanese Yen
€ 0.4100
¥ 18.4
JPY GBP
11 % 11 %
British Pound
£ 0.0903
GOLD Reserves
• Gold reserves (or gold holdings) are held by central banks as a store of value.
World official gold holding (September 2008)[6] Gold
Gold's share of total forex reserves (%)[6]
Rank 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
Country/Organization
(tonnes)
World Eurozone (incl. ECB) USA Germany International Monetary Fund
29,783.90 10,911.40 8,133.50 3,413.10 3,217.30
58.00% 77.30% 66.40% -
France Italy Switzerland Japan SPDR Gold Trust (a Gold exchange-traded fund)
Netherlands People's Republic of China European Central Bank Russia Republic of China (Taiwan) Portugal India Venezuela
2,540.90 2,451.80 1,064.10 765.2
745.2[7] 621.4 600 533.6 472.6 422.4 382.5 357.7 356.8
57.80% 67.00% 38.10% 2.10%
59.90% 0.90% 23.00% 2.10% 3.80% 85.50% 3.10% 29.30%
Reserve Tranche Position(RTP)
• Proportion of the required quota of currency that each IMF member country must provide to the IMF. • The RTP of the quota can be accessed by the member nation at any time with out any obligation.
• IMF denominates its members' quotas in terms of special drawing rights (SDRs), which is essentially a specified basket of major international currencies.
Trend & Growth : Indian Story
• Rise In INDIAN FOREX RESERVES after 1991 : Significant •Major Contributors • CAPITAL INFLOWS ? Foreign Direct Investment ? Portfolio Investment ? NRI Deposits ? External Borrowings
Cause for Accretion of Reserves
?
Indian exports – merchandise exports growing at 18percent per annum
Repatriation of money from abroad
?
?
? ? ?
Interest rate differential.
Rise of IT industry Tourism Millennium bonds issued by GOI
INDIAS FOREIGN EXCHANGE RESERVES OVER THE YEARS
350000
TOTAL RESERVES
300000
FOREIGN CURRENCY ASSETS GOLD
250000
RESERVE POSITION IN IMF
SPECIAL DRAWING RIGHTS
US MILLION $
200000
150000
100000
50000
0
US MILLION $
50000 100000 200000 250000 300000 350000
150000
0 06/01/2006 06/02/2006 06/03/2006 06/04/2006 06/05/2006 06/06/2006 06/07/2006 06/08/2006 06/09/2006 06/10/2006
06/11/2006
06/12/2006 06/01/2007 06/02/2007 06/03/2007 06/04/2007 06/05/2007 06/06/2007 06/07/2007 06/08/2007 06/09/2007 06/10/2007 06/11/2007 06/12/2007 06/01/2008 06/02/2008 06/03/2008
GOLD
06/04/2008
06/05/2008 06/06/2008 06/07/2008 06/08/2008 06/09/2008 06/10/2008
INDIAS FOREIGN EXCHANGE RESERVES 2007 - 2008
TOTAL RESERVES
SPECIAL DRAWING RIGHTS
FOREIGN CURRENCY ASSETS
RESERVE POSITION IN IMF
100 90 80 70 PERCENTAGE 60 50 40
INDIAS FOREIGN EXCHANGE RESERVES OVER THE YEARS
FOREIGN CURRENCY ASSETS GOLD RESERVE POSITION IN IMF SPECIAL DRAWING RIGHTS
30 20 10 0
CAPITAL FLOWS
35000
Portfolio Investment
30000
25000
Foreign Direct Investment External Assistance
US MILLION $
20000
15000
10000
5000
0 1995-96 2001-02 2002-03 2003-04 2004-05 2005-06 R 2006-07 PR 2007-08 P
-5000
CAPITAL FLOWS
25000
20000
External Commercial Borrowings Short term Credits
15000
NRI Deposits
US MILLION $
10000
5000
0 1995-96 2001-02 2002-03 2003-04 2004-05 2005-06 R 2006-07 PR 2007-08 P
-5000
Adequacy
Ability to absorb external shocks
•Traditional approach 3 months of import bill
•Alternative measures of adequacy (C.Rangarajan) 1. Short term external debts 2. 100% of External liability
IMPORT COVER
18.00 16.00
14.00
12.00
MONTHS
10.00
8.00
6.00
4.00
2.00
0.00
SINGAPORE
KOREA
ISRAEL
INDIA
EXTERNAL LIABILITIES COVERAGE
300,000
RESERVES, 252,883 250,000 EXTERNAL LIABILITY, 224000
200,000
USMILLION $
150,000
100,000 NET EXTERNAL LIABILITY, 73900
50,000
0 1
FOREX AS RATIO OF GDP
120
100
80
PERCENTAGE
60
40
20
0
SINGAPORE
KOREA
ISRAEL
INDIA
CHINA
UTILIZATION AS ON OCTOBER 2008
250,000.00
200,000.00
US MILLION $
150,000.00
100,000.00
Singapore Korea Israel India
50,000.00
0.00 Securities Other national central banks, BIS and IMF Domestic Banks Foreign Banks IMF reserve position SDRs Gold
UTILISATION
PERCENTAGE UTILIZATION AS ON OCTOBER 2008
100
90
80
70
PERCENTAGE
60
50
40
30
Singapore Korea Israel India
20
10
0 Securities Other national Domestic Banks Foreign Banks central banks, BIS and IMF IMF reserve position SDRs Gold
UTILISATION
Factors affecting India in forex usage
Legal restrictions by RBI act 1934
Investments can be done only in:
1.
Deposits with other central banks and Bank for International Settlements(BIS).
2.
3.
Deposits with foreign commercial banks
Debt instruments representing sovereign/sovereignguaranteed liability.
4.
Other instruments/institutions as approved by the Central Board of RBI
Factors affecting India in FOREX usage (contd.)
Risk management
1. 2.
i.
Credit risk Market risk currency risk ii. Interest rate risk Liquidity risk Operational risk and control system.
3. 4.
Forex utilization by other countries
Singapore 1981: Government of Singapore Investment corporation. Present value of assets 330 billion USD China 2007: Established China Investment corporation to manage 200 billion USD forex reserves.
Korea:
2005: Established Korea Investment corporation with 17 billion USD.
Steps to be taken.
?
? ?
Reforms in existing laws
Investment in infrastructure Short term Private investment up to 25% of existing reserves Current Forex reserves exceeds 100% external liability. Invest the surplus amount.
?
THANK YOU
doc_490317557.pptx