From UPSC perspective, the following things are important :
Prelims level : NGTA, Forex Reserve
Mains level : Not Much
In a bid to improve its functioning, the RBI has decided to move to the Next Generation Treasury Application (NGTA) for managing the country’s foreign exchange and gold reserves.
Aspirants must make a note here:
1.Authority managing FOREX in India
2.Components of FOREX
4.Emergency use of FOREX
What is NGTA?
- The NGTA, according to the RBI, would be a web-based application providing scalability, manoeuvrability and flexibility to introduce new products and securities, besides supporting multi-currency transactions and settlements.
- It would be supporting various transactions in asset classes like Fixed Income (FI), Forex (FX), Money Market (MM) and Gold.
- It would be used for managing the foreign exchange reserves in a more efficient way, mitigate risk, achieve operational efficiencies, dealing in various asset classes and reporting.
Objectives of NGTA
The objectives of the proposed system include:
- dealing in various asset classes (like Fixed Income Securities, Forex, Money Market, Gold);
- portfolio management; workflow management; reserve management;
- integration with various third-party and in-house systems; and dashboards, reports, widgets.
Features of NGTA
- The NGTA shall automatically fetch all the relevant details of a security/contract from a trading platform.
- It shall support all internationally accepted conventions pertaining today count, interest computation, holiday logic, shut period-dividend, ex-dividend, cash flows, and odd coupon.
- With respect to transactions in gold, the NGTA shall support purchase, sale, deposit (including rollover and premature withdrawal).
- On maturity of a gold deposit, there can be exact, under or over delivery.
Back2Basics: Forex Reserves
- Reserve Bank of India Act and the Foreign Exchange Management Act, 1999 set the legal provisions for governing the foreign exchange reserves.
- RBI accumulates foreign currency reserves by purchasing from authorized dealers in open market operations.
- The Forex reserves of India consist of below four categories:
- Foreign Currency Assets
- Special Drawing Rights (SDRs)
- Reserve Tranche Position
- The IMF says official Forex reserves are held in support of a range of objectives like supporting and maintaining confidence in the policies for monetary and exchange rate management including the capacity to intervene in support of the national or union currency.
- It will also limit external vulnerability by maintaining foreign currency liquidity to absorb shocks during times of crisis or when access to borrowing is curtailed.