India’s gold reserves

— Money markets all over the world were surprised when the International Monetary Fund (IMF) executive board announced on September 18, 2009 that IMF will sell one eighth of its gold reserves, that is 403.3 tonnes of gold in order to increase its resources for lending to low income countries. IMF was “established to encourage international co-operation in the monetary field and the removal of foreign exchange restrictions, to stabilise exchange rates and to facilitate a multilateral payments system between member countries.” Many countries have taken loans from IMF. In the case of India when it had payments difficulties in 1991, the foreign exchange reserves having fallen to only US $1 billion, India took a loan from IMF. The economic liberalisation and reforms were partly a concomitant of the pledge given to IMF at that time. Beside that India mortgaged its gold holdings in 1991 to the Bank of England and the Bank of Switzerland to obtain additional loans. India has overcome its difficulties long ago. Even then it came as a surprise to the world community that the Reserve Bank of India (RBI) could pick up half the IMF gold, that is, 200 tonnes at a cost of US $6.7 billions during the daily sales from 19 to 30 October, 2009. As stated by RBI “this was done as part of the RBI’s foreign exchange reserves management operations.”

Ever since the dawn of civilization gold had a special fascination for human beings. Much hoarding of gold has been noticed in countries like India and China. Again, gold reserves of central banks of all countries played the most important role in currency issue and regulations during the past few centuries when the gold standard was prevalent. But this importance declined to some extent after the crisis of 1973. Even then the total gold reserves in the vaults of central banks have been estimated to be 30,000 tonnes. It is against this background that RBI’s gold reserves of 357.7 tonnes has now gone up to 557.7 tonnes after the October, 2009 purchase. It is good that RBI has realised that it must diversify its foreign exchange reserves of US $285.5 billions. At least its gold holdings has now gone up to 6 per cent of its total foreign exchange reserves. RBI should further diversify by converting some of these reserves into euros, yens and pound sterlings in order to avoid any erosion of value in the face of the declining strength of the US dollar. RBI should also use a part of its reserves for importing state-of-the-art industrial equipments to revamp India’s industries. The Government of India should try to augment its share in the IMF. ASSAM TRIBUNE