Why is RBI bringing back its Gold Assets?

Table of Contents

Why RBI shipping back its Gold?

Improved Capacity: RBI’s capacity to keep its gold has improved in the recent years. Hence, it is now feasible for RBI to store more Gold in the country.
Strategic Reserve Management: The RBI aims to optimise its foreign exchange reserves and diversify its asset allocation.
Cost Savings: By bringing gold back to India, the RBI eliminates the storage fees associated with holding gold in foreign banks like the Bank of England.
Improved Balance of Payment position: Now Indian Forex Reserve has grown to cover 11.2 months of the import cover. Hence, there is no need to keep gold outside the country as India did in 1991.
- In the 1991 Financial crisis, India shipped 47 tonnes of Gold to the Bank of England to raise money to repay its loans.

Increase in Gold holdings: RBIs measure of shipping back the Gold has resulted in 60% increase in the Gold holdings of RBI.
Self Reliance: By controlling more of its gold reserves, India reduces its reliance on foreign institutions and mitigates risks associated with geopolitical tensions and economic shocks.
Reducing dependence on the US dollar: Many Central Banks worldwide are buying Gold and increasing its share in their Forex Reserve to reduce dependence on the US dollar.
Protection against inflation: Gold is viewed as a hedge against inflation. By increasing its gold reserves, India can protect itself from the erosion of purchasing power caused by rising prices.
Boost to economic growth: A strong forex reserve position ensures confidence of both domestic and foreign investors. It may potentially lead to increased foreign direct investment (FDI) and economic growth.

Gold vault of Bank of England

The Bank of England has one of the largest Gold vaults in the World.
After the New York Federal Reserve, it is the second largest custodian of Gold Reserve in the World.

RBI holds73 metric tonnes of gold, of which 510.46 metric tonnes were held domestically & 324.01 metric tonnes of gold were kept in safe custody with the Bank of England and the Bank for International Settlements (BIS).
As of September 2024, the share of gold in the total foreign exchange reserves is about32%.
Top Gold Reserve Holding Countries:
- United States (8,133.46 tonnes)
- Germany
- Italy
- France
- India (8th)
Top Gold Producers: China, Australia, Russia, Canada, USA.
Karnataka is the largest producer of gold in India.
- Hutti Gold Mines (Karnataka) is the only producer of primary gold in the country.