India’s gold reserves parked overseas dropped to a six-year low at the end of March 2024 to -47 per cent of the total. This is the lowest since the Reserve Bank of India (RBI) started accumulating the yellow metal in December 2017.
The RBI started to transfer gold from the UK to its vaults in India from May this year when it moved over 100 tonnes (1 lakh kilograms) of the precious metal.
The movement of gold last month was one of India’s largest since 1991, when part of the gold reserves was pledged to address a foreign exchange crisis.
Why RBI bringing back its gold from the UK?
A report by The Economic Times quoted data saying that the RBI started bringing the gold to India in March 2022, coinciding with Russia’s full-scale invasion of Ukraine.
The RBI, along with central banks of other nations, have turned cautious after the US froze Russian foreign currency assets after the Russia-Ukraine conflict began in February 2022.
Meanwhile, RBI Governor Shaktikanta Das said the India’s central bank is bringing back its gold as there is ample domestic storage capacity and “nothing more should be read into it.”
India’s total gold holding
By the end of March 2024, the RBI’s total gold holdings amounted to 822.1 tonnes, with a significant amount reserved in foreign vaults.
Why RBI store its gold in foreign banks?
As per reports, during India’s foreign exchange crisis in 1990-91, the nation had pledged part of its gold reserves to the Bank of England to secure a $405 million loan. By November 1991, the loan was paid back, but India decided to keep the gold in the UK for convenience.
Where RBI store its gold?
Primarily, India’s gold reserves are stored in the Bank of England, which is known for its stringent security protocols. Apart from this, the RBI also stores some of its gold reserves at the Bank for International Settlements (BIS) in Basel, Switzerland, and the Federal Reserve Bank of New York in the United States.
Risks of storing gold overseas
Reserving gold overseas makes it easier for India to trade, engage in swaps as well as earn returns, but there are risks involved too.
Geopolitical tensions and war or conflict can create uncertainty about the safety of international assets. The freezing of Russian assets by Western nations recently as well as concerns over the UK economy have likely increased the Indian government’s worries about the safety of gold reserves overseas.
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