Recently, the Reserve Bank of India (RBI) has transferred 100 tonnes of gold from its vaults in the UK to its domestic vaults in India. This is the first time since early 1991 when such a large amount of precious metal was added to India’s stock.
According to the report, In the upcoming months, another similar amount of gold can be added to the country.
Background of RBI’s Gold Holdings
Till the end of March 2024, the RBI’s gold price reserve holds around 822.1 tonnes of gold, which is marked as more than in previous years. Among this 822.1 tonnes of gold, 413.8 tonnes were held overseas, particularly with the Bank of England and the Bank for International Settlements (BIS). This recent transfer is part of a broader initiative to repatriate and secure these assets domestically.
According to the central bank’s annual report for FY24, which was made public on Thursday, more than 308 metric tonnes of gold are kept in India as collateral for notes that are issued, and an additional 100.28 tonnes are kept domestically as departmental assets for the banking sector.
413.79 tonnes of the total gold reserves are stored overseas, according to the annual report.
Why does the RBI store gold in foreign countries or banks?
During the 1990-91 foreign exchange crisis, Indians transferred the gold reserve to the Bank of England to secure about 405 million loans. However, the loan was repaid to the country in November 1991, but still, the RBI decided to keep the gold in the UL for logistical reasons. Gold stores abroad can still be used for trading on the stock market and gaining returns. There was no harm in keeping reserve gold in foreign countries. In addition, RBI also purchases more gold from the international market and stores it abroad.Â
Moreover, stored gold at the international level comes with risks, especially during geopolitical tensions. Concerns over the security of assets stored overseas have increased as a result of Western countries freezing Russian assets. These worries are perhaps the reason behind the RBI’s recent decision to repatriate gold from the UK.
Possible Reasons for the Transfer
- Strategic Reserve Management: The RBI aims to diversify and manage its reserves more effectively. To enhance the safety, RBI is considering it. Holding gold domestically in India ensures better control and security over these assets. After all, it is a huge asset for India for the future.
- Geopolitical Considerations: Geopolitical tension is a main consideration. If there is some tension in the country abroad, there is a risk of freezing RBI’s reserve gold. However, an increasingly uncertain global geopolitical environment is seen, so having physical control over gold reserves within the country is considered a safer option. RBI wants to save its large amount of gold reserves.
- Economic Stability: Increasing domestic gold reserves can help people have more faith in India’s sound financial standing and steady economy. RBI is considering economic stability and might transfer its gold back to India.
Implications of the RBI’s Transfer of Gold
Are you wondering what the Implications of the RBI gold in India are? here are some-
- Economic Signal: The transfer of 100 tonnes of gold back to India from the UK will send a powerful message to global markets about India’s robust economic state and policies. It can be committed to safeguarding its financial assets. RBI sent a message to manage its assets securely, by choosing to store a significant portion of its gold reserves domestically. This move reassures international investors and financial markets that RBI or India is serious about their assets and maintains financial stability and protection from potential risks. It will also reflect India’s intent to reduce dependency on foreign custodians, thereby minimising exposure to geopolitical risks and financial volatilities.
- Enhanced Security: Storing Gold in India will enhance security by reducing the risks associated with holding it in foreign countries. There are risks to holding the gold abroad like Geopolitical tensions, changes in international relations, and financial sanctions. If anything occurs, there is a possibility of freezing the gold. RBI wants to bring the gold back to India to reduce the risks and ensure that the assets are under direct national jurisdiction. Moreover, domestic storage of gold also eliminates the uncertainties linked with foreign vaults and custodians. After transferring the gold to India, gold is now subject to Indian laws and regulations. Hence, this movement enhances the overall security of the RBI’s Gold.
- Increased Confidence: To transfer the RBI reserve gold back in India, will boost confidence among both domestic and international stakeholders. People can trade on gold which is stored abroad, but it can be relaxing news for the stockholder. Moreover, This increased confidence can attract more foreign investment, contributing to economic growth and stability.
Process and Logistics Of Transferring RBI’s Reserve Gold
- Transport: It is very challenging logistically to transfer 100 tons of gold from the UK to India. It required meticulous planning and coordination. Obviously, the whole process required high-security transportation from armoured vehicles and armed escorts. Moreover, Insurance is a critical aspect, given the high value of the cargo, ensuring that any potential risks during transit are adequately covered. This transportation must adhere to both international and domestic regulations to ensure compliance with legal standards.
- Storage: After the successful transfer of the reserve gold in India, it needs to be stored securely. As per the report RBI has invested in state-of-the-art vaults in India designed to store gold securely. They provide advanced security systems, including biometric access controls, surveillance cameras, alarm systems, and reinforced structures to protect against theft or unauthorised access. These vaults will be located in strategic locations to keep accessibility and protection at the same time. The RBI’s focus on maintaining high standards of security in its domestic vaults ensures that the gold is safeguarded against any potential threats