Why in the News?

The RBI has repatriated over 100 tonnes of gold from the UK to its domestic vaults, the largest transfer since at least 1991.

What are Gold Reserves?

• • A gold reserve is the gold held by a country’s central bank, acting as a backup for financial promises and a store of value.
  • India, like other nations, stores some of its gold reserves in foreign vaults to spread out risk and facilitate international trading.

• India’s Gold Reserves:

• • As of the end of March 2024, the RBI held 822.10 tonnes of gold, with 408.31 tonnes stored domestically.
  • The share of gold in the total forex of India is around 7-8% as of 2023.

Where does the RBI store its gold?

• India’s gold reserves are primarily stored in the Bank of England, which is known for its stringent security protocols.
• The RBI also stores a portion of its gold reserves at the:

1. Bank for International Settlements (BIS) in Basel, Switzerland, and the
2. Federal Reserve Bank of New York in the United States.

Why does the RBI store its gold in foreign banks?

• Convenience: Storing gold overseas makes it easier for India to trade, engage in swaps and earn returns.
• Averting Risks: There are risks involved, especially during times of geopolitical tensions and war.
  • The recent freezing of Russian assets by Western nations has raised worries about the safety of assets kept abroad and the RBI decision to shift a portion of the gold reserve to India could be prompted by these concerns.
• Stable Prices: Unlike fiat currencies, which can be subject to inflation or devaluation due to various economic factors, the value of gold tends to be relatively stable over time, which makes it an attractive asset for central banks to hold as a reserve.

Benefits Offered by Gold Reserves

• Control domestic gold prices: With its big stash of gold, the RBI can help control local gold prices by using some of it in India. Last financial year, the RBI added about 27.47 tonnes of gold to the total reserve, bringing it to 794.63 tonnes.
• Security buffer: The increased gold reserve works as a hedge against any financial crisis and to take measures to control inflation as well as currency devaluation.

Why is the recent move significant?

• Efficiency and Confidence: Bringing gold back to India reduces storage fees and signals confidence in the stability of the Indian economy.
• Logistical Efficiency: Moving gold to India saves on storage fees paid to foreign custodians, such as the Bank of England.
• Diversified Storage: Repatriation ensures diversified storage, enhancing security and reducing dependency on foreign storage.

Has the RBI made similar purchases or transfers of gold in the past?

• RBI started buying gold in 2018 and had previously bought 200 tonnes during the global financial crisis in 2009.
• In the first quarter of 2024, the RBI bought 19 tonnes of gold, surpassing the 16 tonnes purchased throughout 2023.

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