RBI Gold Reserves [UPSC Notes]

During the fiscal year that ended on March 31, 2023, the Reserve Bank of India (RBI) increased its gold reserves by 34.22 metric tonnes, bringing the total amount of gold held by the RBI to 794.64 metric tonnes. In this article, you can read about the gold reserves of RBI and its significance, a topic relevant for the IAS exam GS paper III economy section.

RBI Gold Reserves

As of March 31, 2022, the RBI had 760.42 metric tonnes of gold, which increased from 695.31 metric tonnes as of March 31, 2021. The gold reserves as of March 31, 2023, includes gold deposits of 56.32 metric tonnes.

Gold Reserves Held Domestically and Overseas:

• As per the RBI’s report on the Management of Foreign Exchange Reserves from October 2022 to March 2023, 437.22 metric tonnes of gold are kept in safe custody overseas with the Bank of England and the Bank of International Settlements (BIS), whereas 301.10 metric tonnes of gold are stored domestically.

Share of Gold in Total Foreign Exchange Reserves:

• As of March 31, 2023, India’s foreign exchange reserves were worth $578.449 billion and the gold reserves were worth $45.2 billion. 
• The percentage of gold in the total foreign exchange reserves increased from 7% in March 2022 to 7.81% in March 2023. 
• As of end-September 2022, the percentage of gold reserves to the total foreign exchange reserves was 7.06%.

Central Banks Buying Gold:

• The RBI is among the top five central banks that are buying gold, according to the World Gold Council’s (WGC) Regional CEO (India) Somasundaram PR.
• Several central banks such as the Monetary Authority of Singapore, the People’s Bank of China, and the Central Bank of the Republic of Turkey have been purchasing gold due to the depreciation of the dollar, negative interest rates, and for the purpose of diversifying their foreign exchange reserves.

Why does RBI keep gold?

Most central banks of countries including India’s RBI keep some of their reserves in gold because gold is a good hedge during times of uncertainty and economic turmoil.

• In recent years, the RBI has been increasing its gold reserves, and other central banks have been doing the same. 
• This trend may be due to economic uncertainty, prompting the diversification of foreign exchange reserves.

Possible reasons for central banks ramping up gold holdings:

• Diversification of foreign exchange reserves: Gold is considered a safe-haven asset and can provide a hedge against inflation and currency fluctuations. By buying more gold, RBI can diversify its foreign exchange reserves and reduce its dependence on other currencies.
• Geopolitical risks: Increasing geopolitical tensions and uncertainties can lead to a flight to safety among investors. Gold is considered a safe asset during such times, and central banks may increase their gold purchases to mitigate potential risks.
• Higher gold prices: The increase in gold prices over the past few years may have prompted RBI to buy more gold as a strategic investment. Higher gold prices can also increase the value of the central bank’s reserves.
• Lower interest rates: Central banks may increase their gold purchases during periods of low-interest rates to diversify their portfolios and enhance returns.
• Historical significance: Gold has been a symbol of wealth and power for centuries. Some central banks may view gold as a symbol of financial stability and security and may increase their gold purchases for this reason.

Know more about RBI in the linked article.

Conclusion: RBI’s increased gold purchases reflect a global trend among central banks to diversify their reserves, reduce reliance on the US dollar, and mitigate geopolitical risks. The move could also provide a hedge against inflation and bolster India’s economic and geopolitical standing.

RBI’s Gold Reserves:- Download PDF Here