RBI's Overseas Gold Reserves Decline to Six-Year Low

RBI's Overseas Gold Reserves Decline to Six-Year Low

New Delhi - As of March, the Reserve Bank of India (RBI) reduced its overseas gold reserves to 47% of its total holdings, marking the lowest level in six years since it began accumulating gold in December 2017. This strategic move aligns with a global trend among central banks, prompted by cautious measures following the US government's freezing of Russian assets in February 2022 amid the Russia-Ukraine conflict.

Repatriation of Gold from UK to India
In a notable development, news surfaced recently that the RBI repatriated 100 tonnes of gold from the UK to India. Governor Shaktikanta Das clarified that this decision stemmed from ample domestic storage capacity, emphasizing there are no broader implications beyond logistics.

Global Trend of Central Banks
A December 2023 survey conducted by Invesco revealed that central banks globally have been increasing their gold reserves held within their own countries. Over the past decade, there has been a significant shift from keeping gold in London for swaps and yield enhancement to repatriating reserves for safe-haven purposes. By December 2023, the share of gold held domestically rose from 50% in 2020 to an estimated 68%, expected to reach 74% within the next five years.

The RBI's gold storage strategy mirrors this global trend. As of March 2024, the proportion of gold held domestically increased to 53%, up from 39% in September 2021. This reversal contrasts with historical practices, such as in 1991 when India flew gold overseas to secure a loan and prevent default on international payments.

Why does the central bank park a big chunk of the gold abroad?
Historically, logistical convenience and trading flexibility have influenced the RBI's decision to keep a significant portion of its gold reserves in UK vaults. However, recent geopolitical tensions and economic uncertainties have raised concerns over the safety of international assets.

Geopolitical tensions and uncertainties surrounding the safety of international assets, exemplified by recent asset freezes and economic outlooks in the UK, contribute to reconsidering storage strategies.

Collaborating with the Indian government, the RBI can strategically utilize domestic gold reserves. This includes managing gold prices in the domestic market, meeting investment demand responsibly, and fostering a robust bullion market within India.

Apart from hedging against inflation and currency volatility, central banks like RBI hold gold to diversify foreign exchange reserves. Declining confidence in dollar assets among global central banks further supports this diversification strategy.

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