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Why RBI stored Gold in UK?


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India’s gold reserves are primarily stored in foreign vaults, including the Bank of England, the Bank for International Settlements (BIS) in Switzerland, and the Federal Reserve Bank of New York. However, the Reserve Bank of India (RBI) recently transferred 100 metric tonnes of gold from the United Kingdom to domestic vaults in the fiscal year 2024. This is one of the largest gold movements since 1991. As a result, India’s total gold holding now stands at 822 metric tonnes in fiscal year 2024, with a significant portion stored in foreign vaults, notably the Bank of England.

Reasons for Storing Gold Reserves Overseas

A gold reserve serves as a backup for a country’s financial promises and acts as a store of value. Like many other nations, India stores some of its gold reserves in foreign vaults to spread out risk and facilitate international trading.

Storage Locations and Historical Context

India’s primary storage location for its gold reserves is the Bank of England, which is renowned 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.

In the past, during India’s foreign exchange crisis in 1990-91, the country pledged some of its gold reserves to the Bank of England to secure a $405 million loan. Although the loan was repaid by November 1991, India decided to keep the gold in the UK for convenience.

Benefits and Risks of Storing Gold Overseas

Storing gold reserves overseas offers advantages such as ease of trading, engaging in swaps, and earning returns. However, there are also risks involved, particularly during periods of geopolitical tensions and war. The recent freezing of Russian assets by Western nations has raised concerns about the safety of assets kept abroad. The RBI’s decision to shift a portion of its gold reserve to India may be prompted by these concerns.

Role of Gold Reserves for the RBI

With its substantial gold stash, the RBI can help control local gold prices by utilizing some of it within India. The central bank has been increasing its gold holdings recently, especially as faith in the US dollar diminishes in many other countries. In the previous financial year, the RBI added approximately 27.47 tonnes of gold to the total reserve, bringing it to 794.63 tonnes. This increased gold reserve acts as a hedge against financial crises and enables measures to control inflation and currency devaluation.

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