RBI BRINGS 100 TONNES OF GOLD RESERVES FROM UK VAULTS
Ishaan Khemani
![Ishaan Khemani]()
Ishaan Khemani
TERI SAS’27 MSC ESRM|| NET ZERO || SUSTAINABILITY AND CLIMATE CHANGE || SUSTAINABLE FINANCE|| ESG|| DECARBONISATION || CARBON MARKETS
· Recently a very special aircraft flew from UK to India and very few people knew about it because the cargo was sensitive as it carried around 100 Tonnes of gold.
· Before you wonder if this was some illegal smuggling you are totally wrong. It is 100% legal Indian gold.
· This gold belongs to RBI ( central bank of india) and until now it was kept in the bank of England (central bank of UK) in London but RBI has brought it back for the first time since 1991.
Now let us address some basic questions that may arouse in your mind related to the above paragraph.
1. Why do central banks keep gold with them?
· Now every central bank in the world has gold reserves because unlike currencies gold is stable.
· Say if the country is facing an economic crisis or you are running low on dollars then you can use gold to bail yourself out.
· So every country has gold reserves in central bank and in fact 17% of the total gold in the world is owned by central banks and RBI owns 822 Tonnes of gold and more than half of it was stored abroad in the Bank of England and Bank of international settlements.
2. Why was the gold stored abroad ?
· Well some of the gold was there even before independence and the rest was sent during the 1990s back when the country was facing an economic crisis so RBI kept the gold in bank of England and its actually a common practice to keep gold there.
· The bank of England stores 4,00,000 bars of gold some of it belongs to Britain and rest belongs to the other countries central banks.
· They keep gold in London for safekeeping but why in London and not in the home country or some other place?
· Well London is the most important gold markets in the world and if you want to pledge or sell your gold to raise money then London offers you liquidity.
· Similarly new York is also an important gold market which is why federal reserve is also a safekeeping vault.
3. Why RBI brought it back?
Now there are many reasons why RBI brought it back and they are as follows:
· Saves money – The gold stored in bank of England was not stored for free they charge a fee and now you don’t have to pay it now.
· Boosts sovereignty – If you hold your reserves abroad there is always a risk like what if your relations are sour with that nation or what if your gold is seized which happened recently. For example Russia’s reserves worth 300 billion dollars were seized by the west after the Ukraine war and similarly for Afghanistan around 7 billion dollars frozen in the US after Taliban’s takeover. Now it does’ not mean that similar things would happen with india but it is always safe to keep it at home.
· Emotional angle/sentiments- In the early 1990s India had to shift the gold abroad because of the economic crisis and every Indian knows how it feels like. In our country gold has a sentimental value means selling or pledging it is the last resort but in the 90s India was bound to do it which is why bringing gold back to the country is symbolic move. In 2009 New Delhi made the first step as it brought 200 Tonnes of gold from the IMF and it costed us 6.7 billion dollars, the idea was simple to diversify and consolidate the reserves of country and now 15 years later another bold step has been taken.
4. What will happen to this gold?
· Now what exactly will happen to the gold that RBI has brought
· Well RBI has two vaults one in Mumbai and other in Nagpur and the gold would be stored there
· It’s a vote of confidence for the Indian economy as our foreign reserves are record high as they stand at 464 billion dollars that’s enough for 11 months of import which is why RBI is confident and don’t see any reason to pledge or sell the gold hence the decision to bring it back.
Conclusion : Well this event combined with the recent GDP numbers of the nation its one of the best days for the Indian economy
⚖️ Intern in Delhi Legislative Assembly
1y👏👏