RBI repatriates 100 tonne of gold reserves from the UK

The Reserve Bank of India (RBI) has commenced the transportation of 100 tonne of its gold reserves from the United Kingdom back to India. This marks the first occasion since 1991 that the RBI has repatriated a portion of its overseas gold reserves to domestic vaults.

Prior to this move, the RBI held approximately 500 tonne of gold abroad and 300 tonne within India. With the repatriation of 100 tonne, the distribution of gold reserves has now achieved a balanced 50-50 split, with 400 tonne each in India and abroad.

There had been considerable speculation among market participants that the decision to bring gold back to India may be influenced by recent geopolitical developments, particularly the US’s derecognition of Russia’s foreign exchange reserves. This sparked concerns that countries might prefer to hold their gold domestically to avoid similar risks.

However, sources within the RBI have dispelled these concerns, stating that the primary motivation behind this move is logistical and strategic rather than geopolitical. The central bank aims to retain a portion of its gold reserves abroad for purposes such as gold swaps and trading but sees no necessity for a substantial amount to be kept outside the country. The decision to repatriate some of the gold is driven by the principle that the majority of the reserves need not remain abroad.

While no official numbers have been provided, indications suggest that the RBI might continue to repatriate more gold in the future. The precise minimum percentage of gold reserves that will be kept abroad remains undecided, but it is clear that a larger share of the reserves is expected to be transported back to India over time.

The practice of holding gold abroad dates back to the 1991 economic crisis. During that period, India shipped 65 tonnes of gold to international vaults to reassure the International Monetary Fund (IMF) and global investors. Subsequently, any gold purchased by India was stored abroad, primarily in London, to facilitate ease of trading and proximity to global financial markets. Notably, in 2009, when the IMF sold gold, India acquired 200 tonne and continued the practice of storing it in foreign vaults.

It is important to note that the repatriation of gold reserves has no financial implications for India’s GDP, tax collections, or the RBI’s balance sheet. The operation merely involves a change in the storage location of the gold, without affecting the overall amount held. Additionally, there are no customs or GST implications associated with this transfer, as the gold being repatriated is already owned by India.