The Reserve Bank issues licences to banks and other institutions to act as Authorised Dealers in the foreign exchange market. In keeping with the move towards liberalisation, the Reserve Bank has undertaken substantial elimination of licensing, quantitative restrictions and other regulatory and discretionary controls.
What is the role of Reserve Bank of India in forex?
- In substantive terms, the Reserve Bank functions as the custodian and manager offorex reserves, and operates within the overall policy framework agreed upon with Government of India. Why Hold Forex Reserves? Technically, it is possible to consider three motivesi.e.,transaction, speculative and precautionary motives for holding reserves.
Are central bank reserves a last resort stock of foreign currency?
- Central bank reserves, however, are characterised primarily as a last resort stock of foreign currency for unpredictable flows, which is consistent with precautionary motive for holding foreign assets.
What are forex reserves and how do they work?
- Furthermore, forex reserves are instruments to maintain or manage the exchange rate, while enabling orderly absorption of international money and capital flows.
Why do countries use international reserves for monetary base?
- Few countries explicitly use international reserves as the backing for monetary base and to maintain the stability and integrity of the monetary and financial system.
Under the new system, the rupee's exchange rate against other currencies is determined largely by market demand and supply. The Reserve Bank of India intervenes occasionally, only for maintaining orderly conditions in the market by curbing excessive volatility.