Component-Wise Volatility and Stability Analysis of India’s Foreign Exchange Reserves: Evidence from 2009–2024
DOI:
https://doi.org/10.31305/ijmds.v15n10.004Keywords:
Foreign exchange reserves, component-wise volatility, reserve bank of India, special drawing rights, Coppock’s instability index, macroeconomic stabilityAbstract
This study investigates the volatility and structural stability of India’s foreign exchange reserves over the fifteen-year period from 2009-10 to 2023-24. Employing a component-wise approach, the analysis focuses on four key reserve assets foreign currency assets, gold holdings, special drawing rights and the reserve tranche position to assess their relative contributions and fluctuations. Using the coefficient of variation and Coppock’s instability index as diagnostic tools, this study introduces a dual-metric framework that captures both dispersion and persistence of volatility across components. The results reveal significant disparities: SDRs exhibited the highest instability due to episodic allocations by the International Monetary Fund, while FCA remained remarkably stable and consistently dominant. Gold reserves showed moderate variability, reflecting both price movements and the Reserve Bank of India’s diversification strategy. RTP remained a minor but fluctuating component. Despite internal fluctuations, India’s total reserve position more than doubled during the study period, with an aggregate instability index suggesting robust reserve management. Comparative insights reaffirm India’s placement among the world’s leading reserve holders, emphasizing strategic accumulation and compositional resilience. The findings carry implications for policymakers in refining reserve adequacy benchmarks, managing component-specific volatility and enhancing India’s preparedness against external sector vulnerabilities common to emerging economies.
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