RBI RESERVES: COMPARATIVE ANALYSIS

About:

• Consultancy firm Quantum Advisors recently released a report in which it analysed the balance sheets of the central banks of 10 comparable economies.
  
  
• Key Findings on RBI Reserves:
  • The RBI's reserves as a percentage of its balance sheet is among the highest in the world.
    
    
  • The RBI’s reserves were about ₹10.5 lakh crore, forming 26.2% its balance sheet. Only two central banks — of South Africa and Russia — have a reserve ratio higher than this.
    
    
  • However, the bulk of these reserves are notional and thus their value can only be unlocked when the underlying assets are sold. This makes transferring the excess reserves to the government all the more difficult.
    
    
  
  
  
• Options before RBI: RBI has following options in front of it if the government does insist on the transfer of reserves.
  • The first is for the central bank to sell its foreign bonds or government bonds, depending on how much the Centre asks for. But selling foreign bonds comes with the risk of being viewed negatively by foreign investors.
    
    
  • The other option is RBI, could simply waive its rights over those bonds, thus reducing its asset holdings and reducing the government’s liabilities.