This refers to your report “RBI’s 2009 gold bet adds sheen to India’s reserves” (August 5). It is time for the central bank to consider selling part of its gold reserves in instalments without disturbing the market and book the profit. It should be given full consideration in the country’s interest and not quickly disposed of on the specious ground that the central bank is not a profit-making institution and, therefore, cannot trade in gold. Profits and losses are part of the lives of central banks as they operate in the markets.
The Reserve Bank of India (Second Amendment) Act 1957 stipulates that the aggregate value of gold coins, gold bullion and foreign securities held in the Issue Department should not at any time be less than Rs 200 crore of which the value of gold should not be less than Rs 115 crore. Our position is very comfortable. Even if the Bank does not want to sell gold it can lend a part of its stocks to commercial banks and earn interest. At the moment, the stocks are sterile and earn no return.
According to one estimate, central banks’ lending of gold amounted to 16,000 tonnes in 2008 accounting for nearly a half of official reserves. The Bank of England is one of them. The loan is off the books and the stock lent continues to be a constituent of official monetary reserves. In 1992 when I visited the Union Bank of Switzerland in Zurich for discussions I was told that the rate of interest on gold loans was around 0.2 per cent. It has fluctuated around that level since then.
A Seshan, Mumbai
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