However, India does not have a policy of actively accumulating reserves as a measure of self-insurance. Any accumulation of reserves is partly an incidental byproduct of our exchange rate policy which is to check undue volatility in the foreign exchange market so that the exchange rate reflects the underlying macroeconomic fundamentals. Incidentally, the increase in our reserves also reflects valuation changes.
In this context, it is also important to note that our foreign exchange reserves comprise not just dollars but also other hard currencies such as the euro and the sterling pound [and] also gold. Managing volatile capital flows beyondbrics reader: What is the RBI’s view on taming the disparity between speculative capital inflow (”FII”) and real investment (”FDI”)?