Share of Gold in India’s Forex Reserves has Doubled in last Four Years | Current Affairs | Vision IAS
News Today Logo

Share of Gold in India’s Forex Reserves has Doubled in last Four Years

Posted 06 May 2025

2 min read

Aligning with a global trend of central banks boosting gold holdings, the Reserve Bank of India (RBI) has increased its share of gold in the foreign exchange to 11.70% (879.59 metric tonnes).

  • India’s gross foreign exchange reserves comprise foreign currency assets of the Reserve Bank, gold held by RBI, Special Drawing Rights (SDRs) and Reserve Position in the International Monetary Fund(IMF).
    • Reserve Position in the IMF  is not included as part of foreign exchange reserves by some countries as they may not be available on immediate demand.

Why are Central Banks around the world hoarding gold?

  • Diversification away from the US Dollar: Central banks are diversifying their reserves away from the dollar to reduce their exposure to potential dollar devaluation.
  • Hedging against Inflation: With global inflation rates on the rise, gold acts as a hedge against the eroding purchasing power of countries’ currencies.
  • Geopolitical Risks: With tensions between major powers like the US, China, and Russia creating uncertainty, gold offers better security than fiat currencies or government bonds.
    • Fiat currency refers to a government-issued currency that isn't backed by a physical commodity like gold or silver.

Risk Associated with storing gold

  • Reduced Liquidity and Flexibility: Converting large gold holdings to cash during urgent needs is slower and costlier than liquidating foreign currency assets. 
  • Zero Yield: Gold yields no interest or dividends, unlike bonds or currency deposits. 
  • Storage and Security Costs: Physical gold demands secure storage, often in domestic or overseas vaults (e.g., Bank of England), increasing costs for storage, insurance, and transportation.
  • Tags :
  • Reserve Bank of India
  • Foreign Exchange Reserves
  • Gold as foreign reserves
Watch News Today
Subscribe for Premium Features