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India’s Gold Reserves

Context

In fiscal year 2023-24, the Reserve Bank of India (RBI) initiated a substantial transfer of gold reserves from the UK to domestic vaults, marking one of India's largest movements of gold since 1991.

India's Gold Reserves

As of March 2024, RBI's total gold reserves amount to 822.10 metric tonnes. Historically, a significant portion of this reserve was stored abroad, including with the Bank of England.
However, the recent transfer of 100 metric tonnes to India brings the local holding to over 408 metric tonnes, almost equalizing the distribution between domestic and foreign storage.
Breakdown of Gold Holdings: According to RBI's annual report for FY24, over 308 metric tonnes of gold serves as backing for issued currency notes, while an additional 100.28 tonnes is held domestically as an asset of the banking department.
India's Global Ranking: India ranks 9th globally in terms of gold reserves. This substantial holding reflects India's cultural affinity for gold and its historical significance as a store of value, contributing to the country's economic stability.

Purpose of Gold Reserves

Store of Value: Gold is perceived as stable and reliable, instilling confidence in economic stability during uncertainty.
Currency Stability: While the gold standard is no longer prevalent, gold reserves can still support a country's currency stability.
Diversification: Gold diversifies a country's asset portfolio, mitigating risks associated with market fluctuations.
Inverse Correlation with USD: Gold's value often increases when the US dollar declines, providing a safeguard during market volatility.
International Trade and Finance: Some countries use gold for trade settlement or as collateral, enhancing creditworthiness and global standing.
Hedge during Crises: Gold serves as a hedge against economic downturns or geopolitical uncertainties, protecting against inflation and currency devaluation.

Fact Box: What is a Gold Reserve?

A gold reserve is the gold held by a national central bank, intended mainly as a guarantee to redeem promises to pay depositors, note holders (e.g. paper money), or trading peers, during the eras of the gold standard, and also as a store of value, or to support the value of the national currency.
India, like many other countries, stores a significant portion of its gold reserves in foreign vaults.
The top 10 countries with the most gold reserves include the United States, Germany, Italy, France, Russia, China, Switzerland, Japan, India and Netherlands (estimates by World Gold Council)

PYQ

Q. Consider the following statements: (2023)

Statement – I: Switzerland is one of the leading exporters of gold in terms of value.
Statement – II: Switzerland has the second largest gold reserves in the world.

Which one of the following is correct in respect of the above statements?

Both statement-I and Statement-II are correct and Statement-II is the correct explanation for Statement-I
Both Statement-I and Statement-II are correct and Statement-II is not the correct explanation for Statement-I
Statement-I is correct but Statement-II is incorrect.
Statement-I- is incorrect but Statement-II is correct.

Solution: (c)

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India’s Gold Reserves

India's Gold Reserves

Purpose of Gold Reserves

Fact Box: What is a Gold Reserve?

PYQ

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