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HOW RBI MANAGES ITS GOLD RESERVES



  Jun 07, 2024

HOW RBI MANAGES ITS GOLD RESERVES



Overview of RBI’s Gold Holdings

As of March 31, 2024, the Reserve Bank of India (RBI) holds a total of 822.10 metric tonnes of gold, up from 794.63 metric tonnes the previous year. The value of these gold reserves stands at $52.67 billion, part of the total foreign exchange reserves which amount to $646.41 billion.

Composition of Gold Reserves

The RBI’s gold holdings are categorized as follows:

• Gold as backing for notes issued in India: 309.03 tonnes

• Gold held as assets of the banking department (including deposits and gold held abroad): 514.07 tonnes

Gold Reserves Over the Years

Increase in Gold Holdings

In the financial year 2023-24, the RBI added 27.47 tonnes of gold to its reserves. This steady accumulation reflects the RBI’s strategic decision to diversify its assets and increase its gold holdings.

Historical Context

The RBI has been purchasing gold for several years. Recently, there has been a significant rise in the accumulation of gold reserves, driven by factors such as reduced confidence in dollar assets and strategic diversification.

Storage and Management of Gold

Domestic and International Storage

• India: 309.03 tonnes are stored domestically as backing for currency issuance.

• Abroad: 514.07 tonnes are held overseas, including recent movements from the UK back to India.

Recent Movements

In May 2024, the RBI repatriated over 100 tonnes of gold from the UK to India. This move, last seen at such a scale in 1991, was driven by logistical considerations and the need for diversified storage.

Strategic Reasons for Increasing Gold Reserves

Diversification

The RBI has been increasing its gold reserves to diversify its asset base and reduce reliance on dollar assets. This is part of a broader strategy observed among central banks worldwide.

Decline in Confidence in Dollar Assets

A decline in confidence in dollar assets among global central banks has prompted a shift towards gold. US Treasury data indicates that the holdings of US Treasury bonds by non-US central banks dropped from 50.1% in January 2023 to 47.2% in January 2024.

Economic and Financial Stability

Gold is considered a safe-haven asset, providing a hedge against inflation and currency fluctuations. By increasing its gold reserves, the RBI aims to strengthen its financial stability and economic resilience.

Policy and Economic Implications

Customs and Tax Exemptions

To facilitate the repatriation of gold, the RBI received customs duty exemptions for importing gold into India, recognizing it as a sovereign asset. However, integrated GST on imports still applies.

Impact on Balance Sheet

The RBI’s total balance sheet increased by Rs 7.02 lakh crore (11.08%) from Rs 63.44 lakh crore as of March 31, 2023, to Rs 70.47 lakh crore as of March 31, 2024. This growth is attributed to rises in foreign investments, gold, and loans and advances.

Conclusion

The RBI’s management of its gold reserves involves strategic accumulation, diversified storage, and adaptation to global economic trends. By increasing its gold holdings, the RBI aims to enhance economic stability, hedge against currency risks, and align with global central banking practices.




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