Reserve Bank of India (RBI) Governor Shaktikanta Das
The Reserve Bank of India's (RBI) foreign exchange reserves are "well dispersed" and diversified, Governor Shaktikanta Das said on March 21, rejecting concerns about the central bank being crippled if the country faced sanctions similar to Russia in the future.
"Our reserves are quite well dispersed. And I don't foresee a situation whereby India will ever face a sanction situation. We are a democratic country. Rule of law prevails. And India doesn't have any expansionary ambitions. This is something which I think the government has stated. These are not my words... I am just quoting what the Prime Minister said last year in Ladakh," Das said in an interaction with members of the Confederation of Indian Industry (CII).
"Our reserves are distributed in various foreign currencies, not just concentrated in one currency. We have gold reserves, which are also dispersed partly in India, partly outside. So it is quite diversified. And sanctions, we don't foresee that situation. But yes, it is something which going forward every country will start thinking about it," the governor added.
Russia's invasion of Ukraine last month resulted in various sanctions being imposed on the world's largest country, including the freezing of assets of the Central Bank of Russia held overseas. This limited the central bank's ability to contain the damage to the ruble, which has plummeted against the US dollar over the last month.
The sanctions against the Central Bank of Russia have sparked speculation that central banks may choose to reduce their holdings of certain assets as part of their foreign exchange reserves. In an article for Project Syndicate website, former RBI governor Raghuram Rajan wrote on March 17 that the fear of "indiscriminate sanctions" could see China, India, and others worrying that their own holdings of advanced-economy debt "may prove unusable if a few countries decide to freeze their assets".
"With few other assets possessing the liquidity of dollar or euro reserves, countries will start limiting activities that necessitate reserve holdings, such as cross-border corporate borrowing," Rajan noted.
However, Das was measured in his statement and said there was no need to talk of a problem that was not there. He also questioned the alternatives in front of the RBI.
"Are you going to move to a complete gold holding, a complete shift towards gold? The liquidity also has to be seen. But why talk of a problem that is not there. And these are issues which are best left to the central bank to deal with internally," he said.
Das noted that while US dollar assets formed a majority of the RBI's foreign currency assets, it had decided to diversify its holdings of assets in other currencies around six months ago.Don't foresee India facing sanctions, but RBI's forex reserves well-diversified, says Governor Das - Moneycontrol
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