Taking stock of gold monetisation schemes

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Schemes announced in the Union Budget to monetise gold stocks will help to unlock dormant money. There is need to research consumption patterns of gold within India. In the Union Budget, Finance Minister Arun Jaitley observed that India is amongst the largest consumers of gold in the world, importing nearly 1,000 tonnes of gold each year. According to conservative estimates, stocks of gold in India are estimated to be nearly 25,000 tonnes or equivalent to about Rs 63 lakh crore. This amounts to nearly 56 per cent of GDP or 67 per cent of total money supply in India. According to other estimates and anecdotal evidence, including market interactions, the amount of gold stocks in India may be at least three times the above-mentioned estimates. The government has proposed in the Union Budget to monetise gold stocks through three schemes. First, to introduce the Gold Monetisation Scheme (GMS) to replace the existing gold deposit and gold metal loan schemes. GMS would allow depositors of gold to earn interest in their metal accounts and enable jewellers to obtain loans in their metal accounts. Second, to develop an alternate financial asset, sovereign gold bonds (SGB), as a substitute for purchasing physical gold. SGBs will carry a fixed rate of interest and will be redeemable in cash based on the face value of gold at the time of redemption. Finally, to develop and issue an Indian gold coin (IGC) with the Ashok Chakra on its face. An IGC would help reduce the demand for coins minted outside India and also help recycle the gold available within the country. In brief, the Government is making efforts to encourage recycling of gold within the country and reduce the pressure on imports that finally impact the current account deficit (CAD). The minting of gold coins in India, mainly used for investment purposes, would lead to higher employment and retention of related profits within the country. Amongst the relevant country experiences, the cases of China and Turkey are very interesting. In China, a limited number of domestic and foreign banks have import licenses and commercial banks have actively contributed to the development of the gold market by providing finances for gold leasing and offering other financial products linked to gold. In Turkey, in 2012, the Turkish central bank introduced a system under which banks could substitute a part of their reserve requirements with gold, thereby boosting gold reserves and monetising stock of gold lying idle "under the mattress" in Turkey. Read more at: https://www.tribuneindia.com/news/archive/comment/taking-stock-of-gold-monetisation-schemes-66930

Publication Date

14-4-2015

Publication Title

The Tribune

Publisher

The Tribune Trust

Keywords

Gold, Gold market, Gold monetisation scheme, GMS, Gross domestic product, GDP

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https://www.tribuneindia.com/news/archive/comment/taking-stock-of-gold-monetisation-schemes-66930

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