Are International Reserves ‘Boon’ to Economy-An Analysis of Composition of Broad Money in Indian Economy in the Post Liberalization Period

Abstract

The Post Liberalisation Period in the Indian Economy is characterised by a rise in Capital Flows and the prudential management of the Trilemma Policy Variables of Financial Liberalisation, Exchange rates and Money Supply. The rise in International Reserves is a testimony to the active intervention by the Monetary Authority to manage the Exchange Rate in the event of Capital inflows, which has implications on the domestic money supply. The Composition of Broad Money in the Indian Economy in the post-liberalisation period is changing in favour of Net Foreign Exchange Assets, which have implications for money supply and exchange rate management.