The Reserve Bank of India (RBI) has repatriated 100 metric tonnes of gold stored in the UK to its domestic vaults in FY24. This significant transfer is one of the largest movements of gold by India since 1991 when a portion of the gold reserves was pledged to address a foreign exchange crisis.
RBI’s Gold Reserves
As of March 2024, the RBI’s total gold reserves stand at 822.10 metric tonnes. A substantial portion of this gold has historically been stored abroad, including with the Bank of England. The recent transfer of 100 metric tonnes to India has increased the quantity of gold stored locally to over 408 metric tonnes. This means the gold holdings are now nearly evenly split between domestic and international locations.
According to the RBI’s annual report for FY24, 308 metric tonnes of gold are held in India as backing for notes issued. Additionally, another 100.28 tonnes are held locally as assets of the banking department. This totals over 408 metric tonnes of gold stored domestically. Meanwhile, 413.79 metric tonnes of gold remain stored abroad.
Reasons for Storing Gold Abroad
Historically, during the 1990-91 foreign exchange crisis, India pledged part of its gold reserves to the Bank of England to secure a $405 million loan. Although the loan was repaid by November 1991, the RBI chose to keep the gold in the UK for logistical reasons. Storing gold abroad facilitates trading, entering into swaps, and earning returns. It also supports the RBI’s practice of purchasing gold from international markets.
However, storing gold internationally comes with risks, especially during geopolitical tensions. Western nations’ recent freezing of Russian assets has heightened concerns about the safety of assets held abroad. The RBI’s decision to repatriate gold from the UK likely reflects these concerns.
Utilizing Domestic Gold Reserves
In consultation with the government, the RBI can use domestically held gold to manage local gold prices. This is particularly relevant given the high demand for investment products like gold exchange-traded funds (ETFs). Such strategies help in developing a robust local bullion market while ensuring that gold reserves remain within the country.
RBI’s Gold Purchasing Strategy
The RBI has significantly increased its gold purchases. In the first four months of 2024, the RBI bought one and a half times the gold it acquired in the entire previous year. This aggressive buying is partly due to declining confidence in dollar assets among central banks globally. Data from the US Treasury Department shows that non-US central banks’ holdings of US Treasury bonds have dropped from 49.8% in March 2023 to 47.1% in March 2024.
In FY24, the RBI added 27.47 tonnes of gold to its reserves, increasing the total from 794.63 tonnes the previous year. This move is part of a broader strategy to diversify foreign exchange reserves and hedge against inflation and currency volatility.
The RBI’s strategy of holding and managing gold reserves, both domestically and internationally, is driven by logistical considerations, market strategies, and geopolitical risks. The recent repatriation of gold from the UK underscores the dynamic nature of the RBI’s approach to safeguarding and utilizing its gold assets. This significant move highlights the RBI’s commitment to maintaining a balanced and secure portfolio of reserves.
Also Read: RBI releases guidelines for voluntary conversion of Small Finance Banks (SFBs) into universal banks