Gold reserves
Topic: Balance of Payments and Exchange Rates · NCERT: Beyond NCERT
Meaning
Gold reserves are the gold that a central bank holds as part of its foreign exchange reserves. Gold is not anyone's debt, and it does not depend on any one country's currency. That makes it a hedge, or protection, against currency risk and sanctions risk. In India, gold is one of four parts of the reserves listed by RBI. The other three are foreign currency assets (FCA), Special Drawing Rights (SDRs) and the reserve tranche position with the IMF.
Example
During the 1991 BoP crisis, India sold about 20 tonnes of gold through SBI. It also pledged about 47 tonnes with the Bank of England and the Bank of Japan to raise emergency funds. In 2024, RBI brought back about 100 tonnes of its gold from the Bank of England.
Don't confuse with
- Foreign currency assets (FCA): these are holdings of foreign currencies and securities such as US Treasuries. FCA is the largest part of India's reserves. Gold is a separate, smaller part.
Related concepts
- Foreign exchange reserves
- Import cover
- Hot money
- Sudden stop
- Capital flight
- Currency swap arrangement