GUESS WHO GOT THE GOLD BACK
~ MRUNMAYEE MAINKAR
FY BSc 2024-2028
Estimated reading time ~ 2 minutes
Even if you did not get to buy gold this Diwali, worry not homie, because we as a nation sure did. On the auspicious occasion of Dhanteras (or Dhanatrayodashi) during the festival of Diwali, the day considered holy for acquiring assets, the Reserve Bank of India brought back 102 tonnes (102000 kilograms!) of gold back from the United Kingdom. In total, the RBI has brought back 214 tonnes of gold back to India since September 2022. The RBI took this decision due to the heightened geopolitical tensions across the world, such as the ongoing Russia-Ukraine and Israel-Palestine disputes, as holding gold back in the home country is definitely more favourable in these times. So in a way, the RBI too celebrated Dhanteras along with us, except on an Ambani level.
To carry out this Herculean task, the RBI used a special shipment aircraft and had tight security adjustments. To facilitate an uninterrupted transportation of gold back home in India, no tariffs were levied on the shipment.
Now, you must be wondering how this gold reached England in the first place. In the early 1990’s during our country’s balance of payments deficit crisis, the Indian government back then was forced to pledge the gold as collateral to the Bank of England and the Union Bank of Switzerland for the 2.2 billion dollars loan taken from the International Monetary Fund.
All the IMF loans taken by India were repaid by May 2000 and no other loans from the organisation were taken. India was able to do so due the liberalisation, privatisation and globalisation (LPG) reforms implemented in 1991. We had also managed to strengthen our FOREX reserves, our stock market had become more accessible, our currency exchange rate was less rigid and private players and foreign banks had been allowed to operate in India. Then why did the reserve still remain in England for all these years? Keeping gold in the Bank of England gives the RBI better access to the London bullion market, known for being quite liquid, the London Bullion market is overseen by the Bank of England, providing security as the market maintains the privacy of transactions between the counterparties.
Now, the RBI did have a valid reason to keep gold in the Bank of England. Having international trade exposure and access to markets like the London bullion market is, without a doubt, beneficial for us. But bringing back a significant chunk of that gold back to India reflects that our financial system is competent enough to handle such a valuable asset. The fact that the gold is now being brought back to India says good things about the growth of our financial sector and our economy as a whole. Bringing back such a huge amount of gold back would obviously have some major effects on our economy. We have greater financial security as our holdings of assets (in this case gold) have increased. This leverages our position in the global financial market, making it easy for us to obtain loans, if required. Gold is an important instrument used by central banks to stabilise the currency of a country and manage financial crises. Due to its inherent value and limited supply, it is continuously in demand and an excellent asset to possess. Our foreign exchange (FOREX) reserves are also strengthened by not just relying on one particular currency or asset, thus making India more resilient against any unpredicted economic shocks. Gold loans will be more easily available, due to the increased quantity of gold available. It can also be used to manage inflation as gold retains its purchasing power and although the prices may fall, gold always retains its stability.
All these are signs that our economy is headed towards growth. In my opinion, this “ghar-wapsi” of gold sent a message across the world about our increasing credibility and that we are well on the path of being a developed country. Given that we are predicted to be the world’s third largest economy, this move might just be a testimonial to the same.