Why is the RBI is Moving its Gold Back from England?

November 8, 2024

GS Paper III Economy

Why is the RBI is Moving its Gold Back from England?

The Reserve Bank of India (RBI) has brought back nearly 130 metric tonnes of gold owned by it and kept in the safe custody of the Bank of England and the Bank for International Settlements (BIS) over the last two-and-a-half years.

Bank for International Settlements (BIS)

Established: 1930, headquartered in Basel, Switzerland, with offices in Hong Kong SAR, Mexico City, and multiple Innovation Hub Centres worldwide.
Ownership: Owned by 63 central banks, representing approximately 95% of global GDP.
Mission: To support central banks in achieving monetary and financial stability through international cooperation and to serve as a “bank for central banks.”
Objectives:
- Facilitate international dialogue and cooperation.
- Encourage responsible innovation and knowledge-sharing.
- Provide in-depth policy analysis and competitive financial services.

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More on Repatriation of Gold

Background: During the 1990-91 foreign exchange crisis, India pledged part of its gold reserves to the Bank of England to secure a USD 405 million loan.
- After the loan was repaid in 1991, the RBI chose to retain the gold in the UK due to logistical benefits, as overseas gold can be easily utilised for trading, swaps, and earning returns.Financial Implications: This transfer has no impact on India’s GDP, tax collections, or the RBI’s balance sheet, as it merely changes the storage location of the gold without altering the total value of RBI’s assets.
- There are no customs or GST implications, as the gold being repatriated is already owned by India.

Rationale for Gold Repatriation

Cost Efficiency: Saving on custodial fees paid to foreign banks.
Increased Confidence in Domestic Security: India’s economic stability and robust security infrastructure now make it feasible to store more reserves domestically.
Reduced Dependence on Foreign Custodians: Diversifying storage locations enhances strategic control over the nation’s gold assets.

Current Status of Gold Reserves in India

As of end-September 2024, the RBI’s total gold reserves stood at 854.73 tonnes.
- Out of this, 510.46 tonnes (about 60%) are now stored within India.
The remaining reserves include 324.01 tonnes kept with the Bank of England and BIS, while 20.26 tonnes are held as gold deposits.

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Impact on Foreign Exchange Reserves

In USD terms, the share of gold in India’s total foreign exchange reserves rose from 8.15% at the end of March 2024 to 9.32% by September 2024.
Over the same period, India’s forex reserves saw a substantial increase, rising from $646.42 billion in March 2024 to $705.78 billion by September 2024

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