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Currency management is inherently tricky for a large emerging market country like India with a near-perpetual current account deficit (CAD). Since India imports a significant amount of capital from the rest of the world, a sudden change in global financial conditions could be potentially destabilising. It is, therefore, extremely important for the Reserve Bank of India (RBI) to remain vigilant.
The complexity of currency management can be gauged from developments over the past year. Reserve accumulation looked a bit excessive to some as it crossed the $600-billion mark last year. Ideas were floated as to how the RBI can maximise returns. This column in November 2021 had discussed the practicality of some such ideas and argued that the “most valuable thing