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Picture Courtesy: https://www.indiatoday.in/business/story/rbi-brings-102-tonnes-of-gold-from-bank-of-england-home-on-dhanteras-2625444-2024-10-30

Context:

The Reserve Bank of India (RBI) relocated 102 tonnes of Gold from the Bank of England to India.

Details

The Reserve Bank of India (RBI) transferred 102 tonnes of gold reserve from the Bank of England to store in domestic facilities. Since September 2022, India has relocated 214 tonnes of gold, indicating the RBI's policy for keeping its wealth domestically.

The Indian Government now holds 324 tonnes of gold reserves in the custody of the Bank of England and the Bank for International Settlements. The Bank of England has long been a trusted custodian for central banks around the world, providing a secure "bullion warehouse" since 1697.

According to the RBI's "Half Yearly Report on Management of Foreign Exchange Reserves," gold held domestically increased by more than 100 tonnes from April to September 2024, reaching 510.46 tons.

As of September 2024, Gold accounted for 9.3% of total foreign reserves. RBI holds 855 tonnes of Gold in reserves.

The Indian government was forced to pledge gold as collateral during the 1991 economic crisis, however, this time, the move is part of a strategy to secure the country's wealth rather than a reaction to an economic crisis.

Why is India bringing back gold?

Gold is considered as a "secure" asset, especially by developing countries, and storing within the borders can increase public trust in the financial system.

Countries prefer to keep their gold reserves at home to shield them from potential foreign sanctions or limitations that could freeze or limit access to assets stored overseas. For example, sanctions imposed by the United States and its allies during the Ukraine war have limited Russia's access to nearly $ 300 billion in gold and foreign exchange assets.

Import cover is an important trade indicator that reflects reserve availability, India's Current foreign reserves are enough to cover imports for 11.8 months.

Storing gold in India provides greater flexibility to RBI to support gold-backed financial instruments in the Indian market.

The RBI pays shipping fees, insurance amounts, custodial fees, and vault charges to organizations like the Bank of England and the Federal Reserve for keeping gold. By bringing back some of this gold, the RBI can decrease these ongoing expenses.

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Source:

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PRACTICE QUESTION

Q.Critically analyze the significance of the Strategic move by the Reserve Bank of India to store gold reserves in domestic facilities and its impact on the Indian Economy. (150 words)