Key Points:
The total value of the world’s foreign currency reserves has dropped by about 7.8%, or $1 trillion, this year, to $12 trillion.
The decrease is the largest seen since at least 2003, according to Bloomberg.
Japan undertook its first intervention to support the yen since 1998 in September.
The value of the gold reserves decreased by $300 million to $37.886 billion.
The rupee has lost roughly 9% of its value in the current calendar year.
The American dollar’s strength, investors’ risk avoidance, and the increase in geopolitical risks are the key causes.
The total value of the world’s foreign currency reserves has dropped by about 7.8%, or $1 trillion, this year, to $12 trillion. The decrease is the largest seen since at least 2003, according to Bloomberg. The decrease comes in the midst of currency support measures by central banks worldwide.
The strengthening of the dollar, which has decreased the value of other currencies against it, is another factor contributing to the decrease in foreign currency reserves across different nations. Japan undertook its first intervention to support the yen since 1998 in September, spending about $20 billion, or about 19% of the loss of reserves this year, to prevent the yen’s decline, according to the report.
India’s foreign currency reserves are likewise shrinking. The country’s total reserves dropped by to $537.518 billion for the week ending September 23 by $8.134 billion. The reserves had declined by more than $5.2 billion, to $545.54 billion, in the previous reporting week. The reserves have been falling as the central bank spends its resources to safeguard the rupee against global volatility.
To strengthen the rupee and draw in foreign investment, the Reserve Bank of India proposed a number of measures in July, including easing FPI restrictions, removing the interest rate cap for FCNR and NRE term deposits, and raising external borrowing limits.
The rupee lost 4 paise to 81.66 against the US dollar in early trade on Thursday amid strong volatility as the national currency was affected by rising crude oil prices. The rupee has lost roughly 9% of its value in the current calendar year after several all-time lows were reached. On January 12, 2022, the local currency was priced at 73.77 to the dollar.
The American dollar’s strength, investors’ risk avoidance, and the increase in geopolitical risks as a result of the situation in Ukraine are the key causes of the rupee’s decline.
The total amount of funds that foreign portfolio investors (FPIs) have withdrawn from the Indian equity markets so far in 2022 is Rs 1.68 lakh crore. For the past two months, foreign investors have become net buyers. However, with a hawkish posture by the US Fed and significant depreciation in the rupee, FPIs once more turned into net sellers in September and pulled nearly Rs 7,600 crore from the Indian equity markets.
