RBI's Repatriation of Gold and Foreign Exchange Reserves Management in India

Introduction and Background

- The Reserve Bank of India (RBI) recently repatriated 102 tonnes of gold from the Bank of England (BoE) and the Bank for International Settlements (BIS).

- The gold repatriated adds up to India's domestically held gold, which stands at 510.46 metric tonnes. 

- Overall, India's total gold reserves with the RBI amount to 854.73 metric tonnes.

 

Ranking of India in Sovereign Gold Holdings 

- According to the World Gold Council's report of June 2024, India ranks 8th globally concerning sovereign gold holdings.

- The United States tops the list, followed by Germany, Italy, France, Russia, China, and Japan.

 

Reasons behind RBI's Decision to Repatriate Gold

- Reducing Geopolitical Risks: Repatriating gold minimises risks of foreign sanctions that could restrict access to assets held abroad.

- Increasing Market Confidence: With gold perceived as a 'safe haven' asset, holding gold domestically boosts public confidence in the financial system.

- Economic Sovereignty: This move aids in enhancing India's debt repaying capacity.

- Supporting Domestic Financial Markets: Storing gold within India gives RBI ample flexibility to support gold-backed financial products domestically.

- Cost Savings: Repatriating gold allows the RBI to cut down on costs like insurance and storage fees it pays to international banks.

 

Global Trend of Gold Repatriation

- Repatriation of gold is a current global trend, particularly in the last decade, with countries like Venezuela and Austria repatriating their gold from US and European vaults for reasons including geopolitical risks, market stability, and cost savings.

 

Improving India's Import Cover 

- Repatriating gold also improves India's import cover, a key trade indicator that reflects reserves adequacy. Current foreign reserves can cover about 11.8 months of import.

 

Overview of India's Foreign Exchange Reserves

- Besides gold, foreign exchange reserves include assets like bonds, treasury bills, and other government securities held by a country's central bank.

- As of October 2024, India's foreign exchange reserves position stood at USD 688.27 billion.

 

Background of Foreign Exchange Rate Management

- Historically, the Gold Standard (1870-1914) and Bretton Woods System (1944-1971) governed exchange rates.

- Post-1971, exchange rates are market-determined under various regimes.

- The RBI's strategy to uphold gold reserves abroad is based on mitigating geopolitical risks, ensuring international liquidity, reinforcing economic resilience, and entrusting gold reserves to reliable custodians.

 

Security Measures of Major International Gold Vaults

- Major international gold vaults, such as the Bank of England, BIS in Switzerland, and the Federal Reserve Bank of New York, USA, have robust security systems including advanced surveillance, reinforced vault doors, biometric access controls, continuous monitoring, and more.