MUMBAI: The Reserve Bank, which has been snapping up greenbacks in the past two years, has also been lapping up US treasury bills and the holdings touched a record high in January. The holdings rose by more than USD 2 billion between December 2019 and January 2020.
At USD 164.3 billion, the Reserve Bank's US treasury holdings is at an all-time high, show the latest data from the US Treasury Department.
The love for dollars and other US government assets began with the collapse of the gold standard or the Bretton Woods principles in the late 1970s and central banks moved to the fractional reserves system. Since then, the US dollar/Tbills have been the safest asset class for any central bank, despite getting one of the lowest returns.
While during the 2008 global credit crisis the return had been close to zero, the coronavirus pandemic has also yanked down the interest rates in the US to 0- 0.25% now and so will be the return on investments.
But for central banks, return is not the priority but safety and liquidity of their investments are. Central banks, including the Reserve Bank of India (RBI), follow the principle of SLR (Safety, Liquidity and Return) for their investment decisions.