Context:
The Reserve Bank of India (RBI) has been gradually reducing its exposure to US Treasury Bills (T-bills) over the past year, signalling a cautious shift in its foreign exchange reserve strategy. This move comes ahead of US President Donald Trump's decision to impose a 50% tariff on Indian imports, raising concerns about potential further steps targeting India's vast investments in US securities.
Gradual Reduction in US Treasury Holdings:
India's holdings in US Treasury securities peaked at $247.2 billion in September 2024 but steadily declined to $219.1 billion by December 2024.
· As of June 2025, India held $227 billion, reflecting a $20 billion reduction since the peak. This marks a deliberate move by the RBI to reduce exposure to US assets. India currently ranks as the 10th-largest investor in US Treasury Bills (T-bills).
· Despite the shift, India’s overall forex reserves rose to $694.23 billion by the end of August 2025, Holdings in global foreign currency assets stood at $485.35 billion in March 2025, down from $515.24 billion in September 2024. The RBI's management remains focused on safety, liquidity, and returns.
Reasons behind this shift:
The shift comes amid fears that geopolitical tensions could threaten the safety of overseas reserves. A notable precedent was set when the US and its allies froze Russia’s foreign reserves following the Ukraine invasion.
· Though rare, such actions highlight the theoretical risk of the US restricting access to foreign-held T-bills in extreme situations. This possibility may have influenced the RBI’s measured reduction of US investments.
What RBI done:
Alongside reducing US assets, the RBI has increased domestic gold holdings. Gold held abroad declined from 387.26 tonnes in March 2024 to 348.62 tonnes in March 2025, while domestic reserves rose from 408.10 tonnes to 511.99 tonnes in the same period. This rebalancing indicates the RBI's dual strategy of diversification and liquidity.
· Additionally, the RBI holds government bonds from countries like Japan, Germany, France, and the UK, as well as securities from institutions like the IMF, ADB, and World Bank.
About Foreign Exchange Reserves:
Foreign exchange (forex) reserves are official assets held by a country's central bank in foreign currencies, gold, and other international financial instruments. These reserves are used to support the country's currency, economy, and international trade obligations.
Components of Forex Reserves
1. Foreign Currency Assets (FCA):
o These are mainly held in major currencies like the US Dollar, Euro, Japanese Yen, and British Pound.
o They include government securities, deposits, and other market instruments.
2. Gold Reserves:
o Physical gold held by the central bank as a store of value and hedge against inflation.
3. Special Drawing Rights (SDRs):
o An international reserve asset created by the IMF.
o Its value is based on a basket of five major currencies: USD, Euro, RMB, Yen, and Pound Sterling.
4. IMF Reserve Position:
o It reflects a country’s quota contribution to the IMF and drawing rights available under normal conditions.
Conclusion:
India’s evolving reserve strategy reflects growing awareness of global financial risks. By reducing reliance on US T-bills, increasing gold reserves, and diversifying across asset classes and jurisdictions, the RBI is ensuring that India’s financial stability remains secure in an increasingly uncertain world.
