Understanding India’s Foreign Reserves and Global Risk
Understanding India’s Foreign Reserves and Global Risk India’s foreign exchange reserves have been growing about its GDP. This article explores why central banks accumulate reserves, examining if they hold enough to guard against significant capital flow disruptions. Specifically, it evaluates if the benefits of having more reserves surpass the costs, within the Indian context. Since 1991, India has built up a considerable amount of foreign exchange reserves (see Figure 1). This increase in reserves relative to GDP is part of a broader trend seen in many large emerging market economies (see Figure 2). The accumulation of reserves in these markets prompts questions about their use, adequacy for intended purposes, and whether the advantages of higher reserves justify the associated costs. Figure 1. Foreign reserves for India, in millions of US$ Figure 2. Reserve accumulation in India and other Asian economies, in millions US$ In our research, we explore various aspects of India...
