According to the Reserve Bank of India's (RBI) latest foreign exchange reserves data, gold reserves have reached to $102.3 billion.

• This has taken the share of the gold in the foreign reserves to nearly 15% from around 7% a decade ago.

Why is RBI increasing gold reserves?

• Diversification: diversify foreign currency assets base and reduce dependency on the US dollar (de-dollarization).
• Risk Mitigation: help protect against currency volatility and the resulting revaluation risks to its foreign exchange stockpile.
• Hedge against Inflation: Gold is accumulated as a hedge against inflation, helping protect the purchasing power of India’s foreign reserves.
• Safe Haven Asset: Gold is viewed as a safe investment during economic and geopolitical turmoil, providing a buffer during financial crises.

Risks associated with increasing gold in foreign reserves

• Reduced liquidity: conversion of gold to cash is slower and costlier.
• Zero Yield: Gold yields no interest unlike currency deposits.
• Storage and security costs: Physical gold demands secure storage, increasing costs.