RBI’s hoard of gold now almost 800 tonnes: What’s behind the gold rush by central banks?

RBI’s hoard of gold now almost 800 tonnes: What’s behind the gold rush by central banks?

Context- The Reserve Bank of India’s (RBI) gold reserves touched 794.64 metric tonnes in fiscal 2023, an increase of nearly 5 per cent over fiscal 2022, when it held 760.42 metric tonnes of gold.

(Credits- GeeksforGeeks)

So why are these reserves increasing?

  • Because, as part of the diversification process, the RBI has been adding gold to its reserves, which is considered a more safe, secure, and liquid asset, to safeguard its returns amid global uncertainty and a rising inflation

And how much gold has RBI bought?

  • The RBI bought 34.22 tonnes of gold in fiscal 2023; in fiscal 2022, it had accumulated 65.11 tonnes of gold.
  • The 794.64 tonnes of gold reserves in fiscal 2023 also included gold deposits of 56.32 tonnes. In its half-yearly report on Management of Foreign Exchange Reserves: October 2022-March 2023, released on Monday (May 8), the RBI said 437.22 tonnes of gold is held overseas in safe custody with the Bank of England and the Bank of International Settlements (BIS), and 301.10 tonnes of gold is held domestically.
  • As on March 31, 2023, the country’s total foreign exchange reserves stood at $578.449 billion, and gold reserves were pegged at $45.2 billion. In value terms (USD), the share of gold in the total foreign exchange reserves increased from about 7 per cent at the end of March 2022 to about 7.81 per cent at the end of March 2023. It was 7.06 per cent as of end-September 2022.

But why is the RBI purchasing so much gold?

  • Experts believe that the RBI has been stepping up its gold purchases over the last few years in order to diversify its overall reserves. This change in strategy, according to experts, has been driven by negative interest rates in the past, the weakening of the dollar and growing geopolitical uncertainty.
  • “Central banks want security, safety, liquidity and return. Gold is a safe asset to have as it is liquid, has an international price which is transparent, and as it can be traded anytime. So, central banks are buying gold,” World Gold Council’s (WGC’s) Regional CEO (India) Somasundaram PR said last week.
  • The RBI added 7 tonnes of gold in January-March 2023, a recent WGC report showed. According to Somasundaram, the RBI is among the top five central banks that are buying gold.

So are other central banks too buying gold?

  • Yes, many other central banks, including the Monetary Authority of Singapore (MAS), the People’s Bank of China (PBoC) and the Central Bank of the Republic of Turkey have been buying gold. In the calendar year 2022, central banks around the world purchased 1,136 tonnes of gold, which was a record high.

And which are the main banks buying gold?

  • According to the WGC, gold is being bought mainly by central banks of emerging market economies.
  • These announcements were significant given China’s historic position as a large buyer of gold, having accumulated 1,448 tonnes between 2002 and 2019, the WGC report said. However, the Central Bank of Turkey reported the largest buying in 2022. Its official gold reserves swelled by 148 tonnes to 542 tonnes, the highest level on record.
  • During 2022, the central banks from the Middle East, including Egypt, Qatar, Iraq, the UAE, and Oman significantly boosted their gold reserves. The Central Bank of Uzbekistan ended 2022 as a net purchaser of gold, with its gold reserves rising by 34 tonnes.

Conclusion- Experts believe that RBI has been seeking to diversify its overall reserves, a strategy driven by negative interest rates in the past, the weakening of the dollar, and growing geopolitical uncertainty.

Syllabus- GS-3; Economy

Source- Indian Express

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