RBI’s denial fails to bridle row over gold shifting

While Congress shares a report regarding shifting of 200 tonnes of RBI’s gold to Switzerland in 2014, the apex bank says it is a normal practice for central banks to keep their gold reserves overseas

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When the Congress party tweeted a report regarding shifting of 200 tonnes of the RBI’s gold to Switzerland with the tweet, “Did the Modi govt secretly transport 200 tonnes of RBI’s gold to Switzerland in 2014?,” it led to a huge controversy which refuses to die down.

The tweet came in the aftermath of a candidate contesting election from South Delhi constituency alleging that the Modi government secretly transported 200 tonnes of the Reserve Bank of India’s (RBI) gold reserve overseas immediately after coming to power in May 2014.

An investigative journalist by profession, Navneet Chaturvedi reached his conclusion after filing an RTI seeking information on the existing gold reserves of the RBI last year and through the study of central bank’s annual reports.

The scribe-turned-politician claimed that the missing 200 tonne gold was the same which was bought by the Indian government from the International Monetary Fund (IMF) in 2009. “What did the government get in return for exchanging the gold? Why is the information about the transaction not available in the public domain?” Chaturvedi is now questioning.

When a row was created and there was furor in the political circles over the revelations, the Reserve Bank of India (RBI) issued a clarification and said no gold was shifted outside the country in 2014 or thereafter. The statement came against the backdrop of reports in certain sections of the print and social media regarding the central bank shifting abroad a part of its gold holding in 2014. However, the statement issued by the RBI created further confusion.

This is what the RBI statement said that “It is a normal practice for central banks world over to keep their gold reserves overseas with central banks of other countries like Bank of England for safe custody”. “It is further stated that no gold was shifted by the RBI from India to other countries in 2014 or thereafter. Thus, the media reports cited above are factually incorrect,” the statement said.

The Congress party had tweeted a report regarding shifting of 200 tonnes of the RBI’s gold to Switzerland in 2014. “Did the Modi govt secretly transport 200 tonnes of RBI’s gold to Switzerland in 2014?,” the party had tweeted while tagging the report.

There were allegations that the Modi government secretly transported 200 tonnes of the Reserve Bank of India’s (RBI) gold reserve overseas immediately after coming to power in May 2014. It may be worth mentioning that under IMF’s limited gold sales programme in 2009, India had purchased gold worth 31,490 crore from the Bretton Woods’ institution. Refusal to provide information under the Right to Information Act further confounded the matter.

In response to an RTI query in August 2018 seeking information on the quantity of gold stocked up in RBI’s Nagpur vault, the central bank stated that the said information could not be disclosed as per the extent disclosure policy of the Reserve Bank of India.

In response to another question on the quantity of gold held overseas, the RBI replied that the “Reserve Bank of India holds 268.01 tonnes of gold overseas in safe custody with Bank of England and Bank of International Settlements.”

After going through RBI’s audit reports from the year 2011 through 2015, Chaturvedi claimed that “something fishy” happened between 2014 and 2015.

As per RBI’s annual balance sheet dated June 30, 2011, the said quantity of gold was in India as of then. The annual balance sheet released on June 30, 2014, also showed that the gold remained in India.

However, the process to transport the gold overseas, away from the public limelight, began immediately after the Modi government came to power in May 2014. As per the annual audit report of 2015, a part of the said gold was kept at the Bank of International Settlements, Switzerland, while the rest remained in India.

“This transfer of India’s gold assets to a foreign country should have been in public domain. The government is clearly hiding something, hoping that they would be able to avoid public scrutiny,” says Chaturvedi.

It is learnt that the Reserve Bank of India, which added 6.5 tonnes of gold to its reserves in January, taking its total holding forming part of its foreign exchange reserves to 607 tonnes, was all set to become the tenth largest holder of the metal worldwide, displacing the Netherlands. According to data provided by the World Gold Council, India’s share of gold held globally has been rising steadily to stand at 6.2 per cent at the end of 2018 and had gone up further in January 2019.

In fact, most central banks were seen raising their gold holdings as the dollar was strengthening, as they felt the need to diversify their reserves. Gold is seen as a better hedge against the dollar than any other currency. According to WGC, global gold reserves in January rose by as much as 35 tonnes on a net basis (gross purchases of 48 tonnes less gross sales of 13 tonnes), with sizeable purchases by nine central banks. The data also placed India in the 11th spot among top holders of gold as a part of forex reserves, in a loss that includes the International Monetary fund as well.

Sources in the World Gold Council said, “Following the multi-decade high in gold reserve growth in 2018, central banks’ appetite remained healthy at the start of 2019. Gross purchases of 48 tonnes and gross sales of 13 tonnes led to global gold reserves rising by 35 tonnes on a net basis in January, with sizeable increases from nine central banks. This is the largest January increase in gold reserves in our records (going back to 2002) and illustrates the recent strength in gold accumulation.”

In 2018, over 600 tonnes of gold were bought by central banks, led by those in emerging markets. This was highest in the past five decades. As part of its efforts to diversify the reserves, the Reserve Bank of India (RBI) bought 13.7 tonnes of gold in the September quarter. India, along with a few other central banks, lifted their quarterly and year-to-date gold purchases to a three-year high.

The RBI added 13.7 tonnes of gold to its reserves after buying 8.46 tonnes by the end of FY18. This brought year-to-date purchases to 21.8 tonnes. RBI held 566.23 tonnes of gold as on June 30, 2018.

Before 2018, the RBI had purchased gold in November 2009. Then the central bank had bought 200 tonnes of yellow metal from the International Monetary Fund (IMF) and had triggered a bull-run in the commodity.

The Netherlands holds the 10th position with 612.5 tonnes, or just about 5.5 tonnes ahead of the RBI. Netherlands’ central bank has not changed in the last decade and, as a matter of fact, it had been selling gold ten years ago under an agreement with European central banks to reduce gold holdings. The moving away of over 200 tonnes of gold from India could raise doubts over the data.

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