{"id":162412,"date":"2022-01-17T20:38:45","date_gmt":"2022-01-17T15:08:45","guid":{"rendered":"https:\/\/blog.forumias.com\/?p=162412"},"modified":"2022-01-17T20:41:50","modified_gmt":"2022-01-17T15:11:50","slug":"how-do-sdrs-help-maintain-balance-of-payments","status":"publish","type":"post","link":"https:\/\/forumias.com\/blog\/how-do-sdrs-help-maintain-balance-of-payments\/","title":{"rendered":"How do SDRs help maintain balance of payments?"},"content":{"rendered":"\n<p><strong>News: \u00a0<\/strong>In July-September 2021, India received $31.2 billion foreign exchange reserves. Out of this, $17.86 billion was by way of Special Drawing Rights (SDR) support received from the International Monetary Fund.<\/p>\n<p>SDRs being one of the components of foreign exchange reserves (FER) of a country, an increase in its holdings is reflected in the BOP.<\/p>\n<p><strong>What is SDR? Read here<\/strong>: <a href=\"https:\/\/forumias.com\/blog\/special-drawing-rights\/\" target=\"_blank\" rel=\"noopener\">Special Drawing Rights<\/a><\/p>\n<h5><strong>What are the key components of BOP?<\/strong><\/h5>\n<p><strong>BOP:<\/strong> It divides transactions of a country with the rest of the world into two accounts: the current account and the capital account.<\/p>\n<p><strong>Current account: <\/strong>it consists of net trade of exports and imports of products and services, net earnings on cross-border investments, and net transfer payments.<\/p>\n<p><strong>Capital account: <\/strong>constitutes a country\u2019s transactions in financial instruments i.e., assets and liabilities constituting of direct investment, portfolio investment, loans, banking capital, and other capital.<\/p>\n<p><strong>International reserves and IMF transactions<\/strong>: IMF transactions are also a key component of the BOP.<\/p>\n<h5><strong>What does the SDR support signify?<\/strong><\/h5>\n<p>The present support of $17.86 billion in August 2021 by way of SDR indicates two things,<\/p>\n<p><strong>One,<\/strong> the domestic business environment is failing to attract foreign direct investment.<\/p>\n<p><strong>Two,<\/strong> FPIs move away from host countries such as India due to US Federal Reserve\u2019s plans to increase interest rates.<\/p>\n<h5><strong>Is dependence on SDR a matter of concern?<\/strong><\/h5>\n<p>A BOP dependent on an SDR-dependent capital account surplus to cushion the country\u2019s widening current account deficit is a matter of concern.<\/p>\n<p>Because IMF support comes with conditions. For instance, in 1991, the support came with the condition that India has to initiate big-ticket economic reforms. It impacts India\u2019s sovereign rights to design its policy strategy.<\/p>\n<h5><strong>What has been India\u2019s BOP position in recent years?<\/strong><\/h5>\n<p>In the January-March quarter of FY20, the country\u2019s current account had recorded a surplus on the back of a higher decline in imports.<\/p>\n<p>However, In the July-September 2021 quarter, India\u2019s current account slipped into a deficit of $9.58 billion as against a surplus of $6.57 billion in the April-June 2021<\/p>\n<p><strong>Source:<\/strong> This post is based on the article \u201c<strong>Surplus liquidity in the system: How it came and how it may go\u201d<\/strong> published in <strong>Live Mint<\/strong> on 17<sup>th<\/sup> <strong>Jan<\/strong> 2022.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>News: \u00a0In July-September 2021, India received $31.2 billion foreign exchange reserves. Out of this, $17.86 billion was by way of Special Drawing Rights (SDR) support received from the International Monetary Fund. SDRs being one of the components of foreign exchange reserves (FER) of a country, an increase in its holdings is reflected in the BOP.&hellip; <a class=\"more-link\" href=\"https:\/\/forumias.com\/blog\/how-do-sdrs-help-maintain-balance-of-payments\/\">Continue reading <span class=\"screen-reader-text\">How do SDRs help maintain balance of payments?<\/span><\/a><\/p>\n","protected":false},"author":10316,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"footnotes":""},"categories":[1230,9],"tags":[216,10501],"class_list":["post-162412","post","type-post","status-publish","format-standard","hentry","category-9-pm-daily-articles","category-public","tag-gs-paper-3","tag-live-mint","entry"],"jetpack_featured_media_url":"","views":{"total":0,"cached_at":"","cached_date":1700522945},"jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/162412","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/users\/10316"}],"replies":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/comments?post=162412"}],"version-history":[{"count":0,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/162412\/revisions"}],"wp:attachment":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/media?parent=162412"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/categories?post=162412"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/tags?post=162412"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}