10 July 2020

Editor's Space

Selling family jewellery



Currently market is abuzz that RBI is selling its gold reserves. 


The buzz started after a report that RBI was selling gold from its reserves. It said RBI has bought gold worth $5.1 billion and sold about $1.15 billion of gold since beginning of its business year in July. Value of gold in India’s forex reserves amounted to $26.7 billion in October. This has to be seen in context of adopting recommendations of Dr Jalan Committee on RBI’s economic capital framework, which advised that after providing for various risk buffers, (ranging between 5.5% to 6.5% of  RBI’s balance sheet), entire realised surplus can be transferred to the government.  Temptation to sell the gold would have been with blessings of the Jalan Committee.



As a rebuttal to this rumour, RBI promptly rubbished reports that it was selling gold from its reserves or trading gold. "The fluctuation depicted in Weekly Statistical Supplement (WSS) is due to change in frequency of revaluation from monthly to weekly basis and is based on international prices of gold and exchange rates," RBI said on its Twitter handle.



With its 618.2 tonnes of gold holdings end-August, RBI is among top 10 central banks globally in terms of gold reserves. Last two years, RBI has been constantly increasing its gold reserves, data from the World Gold Council shows.



Dipping into the RBI till



What gives credence to the gold selling rumour is the fact that despite stiff resistance from two previous RBI Governors, the government got RBI (with blessings of Jalan Committee) to transfer a record Rs.1,23,414 crore of its surplus to the central government for FY 2018-19 or FY19 (July to June), and an additional Rs.52,637 crore of excess provisions as recommended by Jalan Committee, on Economic Capital Framework (ECF).


This dipping into the Central Banks’ till is bad economic policy, without precedent in history of Central Banking. And even more shocking and unprecedented is appointing a Central Bank Governor who has no degree in economics, and therefore no understanding of economics. The current RBI Governor is a retired IAS officer who majored in History.


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