Why RBI is bring back 100 metric tones of gold in India?

Recently India brought back 100 metric tons of gold currently stored in the Bank of England. The decision to store some of the gold in England is considered safe.

As per the information available, the Reserve Bank of India (RBI) has a total of around 822 metric tons of gold. Here is the bifurcation of the storage:

Stored in India: 308 metric tons

Stored in the Bank of England: 514 metric tons

Recently, the RBI has decided to call back 100 metric tons of gold from the Bank of England to India. Here are the detailed reasons for this decision:

Geopolitical Risks:

The current global political landscape is highly dynamic and can change rapidly. If India’s political relations with Western countries, including the UK, were to deteriorate, there could be potential risks associated with keeping substantial gold reserves abroad. Historical precedents, such as the freezing of Russia’s reserves, highlight these risks.

Risk of Sanctions and Freezing of Assets:

In cases of severe geopolitical conflicts or sanctions, foreign-held assets can be frozen. For example, in response to geopolitical conflicts, Western countries have previously frozen Russian assets. This scenario underscores the risk that India’s gold reserves stored in England could be similarly affected if political relations were to sour.

Strengthening Domestic Reserves:

By bringing back a portion of its gold reserves, India aims to strengthen its domestic reserves. This move can enhance the financial security and stability of the country, providing a solid backup for economic activities and policies.

Mitigating Risks of External Storage:

Although storing gold in the Bank of England is considered safe, there are inherent risks associated with keeping significant reserves in a foreign country. Political or economic instability in the host country, changes in foreign policies, or geopolitical tensions could potentially impact the security and accessibility of the gold.

Cost Efficiency:

Storing gold abroad involves costs such as storage fees and insurance. By repatriating a portion of its gold, the RBI can reduce these costs, leading to better financial management and savings.

Flexibility in Monetary Policy:

Having more gold within the country can provide the RBI with greater flexibility in its monetary policy. It can be used as collateral for domestic financial operations, lending credibility and stability to the currency and financial system.

Increasing Confidence among Citizens:

Bringing back gold reserves can boost the confidence of Indian citizens in the country’s financial health. It shows a proactive approach by the RBI in managing the nation’s assets and protecting its wealth.

Diversifying Storage Locations:

While the Bank of England is a reliable storage location, diversifying the storage locations can further secure the reserves. Having significant portions of gold in multiple locations can mitigate risks associated with any single storage facility.

In summary, the decision to call back 100 metric tons of gold from the Bank of England to India is driven by a desire to strengthen domestic reserves, mitigate risks, reduce costs, enhance monetary policy flexibility, boost citizen confidence, and diversify storage locations.