A gold reserve is the gold held by a country’s central bank. (Representational)
The Reserve Bank of India transferred 100 metric tonnes of gold from the United Kingdom to domestic vaults in FY24, making it one of the largest gold movements since 1991, according to reports. The country’s total gold holding now stands at 822 metric tonnes in FY24, with a significant portion stored in foreign vaults, including the Bank of England.
This move comes amid the geopolitical tensions and the West’s freezing of Russian assets, which has heightened concerns about the security of overseas assets.
A gold reserve is the gold held by a country’s central bank, acting as a backup for financial promises and a store of value. India, like other nations, stores some of its gold reserves in foreign vaults to spread out risk and facilitate international trading.
Where does the RBI store its gold?
India’s gold reserves are primarily stored in the Bank of England, known for its stringent security protocols. Additionally, the RBI stores a portion 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.
Reasons for storing gold in foreign banks
In 1990-91, during India’s foreign exchange crisis, the country pledged some of its gold reserves to the Bank of England to secure a loan. While the loan was repaid by November 1991, India chose to keep the gold in the UK for convenience. Storing gold overseas enables India to trade, engage in swaps, and earn returns, although it also carries risks, particularly during geopolitical tensions and conflicts.
Importance of RBI’s gold reserves
With a substantial amount of gold, the RBI can influence local gold prices by utilizing some of it in India. The central bank has been increasing its gold reserves, notably as other countries are losing trust in the US dollar. This increased reserve acts as a hedge against financial crises and helps in controlling inflation and currency devaluation.
The recent movement of gold from foreign vaults to domestic ones by the RBI could be a strategic decision to mitigate risks associated with geopolitical tensions and safeguard national assets.
