India diversifies foreign exchange reserves: from dollars to euros

India on Tuesday made statements indicating that it might be thinking of reducing its reliance on the dollar in its foreign exchange reserves.

In a written answer to a question about India’s exposure to the dollar, the junior finance minister referred to “diversification of currency risk.”

India does not reveal the makeup of its reserves, but analysts believe that India’s central bank reserves are currently about two-thirds dollars.

Adding to this perception is a statement by the Bank for International Settlements, which said in March that India’s banking sector, including both commercial banks and the Reserve Bank of India , held only 43 percent of its deposits in dollars in September 2004, compared to 68 percent in September 2001.

In whatever currencies they are held, India’s reserves are known to have grown by $13.5 billion, to $142.6 billion since January.

This makes it the sixth largest foreign currency reserve in the world.

Further, because the junior finance minister’s written comments included a statement that the euro is an important currency to the RBI, it has raised speculation that India is looking to switch to the euro in its effort to reduce its exposure to the dollar.

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