The scheme has some important implications. First, it is intended to bring into circulation the huge reserves of gold held by households and other institutions (such as temple trusts) in India. This will
increase the recycling of domestically held gold and also reduce jewellers’ reliance on imported gold. According to the World Gold Council’s estimates, Indian households and other institutions own around 22000 MT (metric tonne) of gold. Even if the scheme is able to create only 100-200MT in gold deposits every year over the next few years, it could help reduce the gold import bill by 10-20% (USD3-6bn) annually.
Second, this may still turn out to be an attractive option for households and temple trusts which currently earn nothing on gold, and now could get a return and storage as well. Real demand and the scheme’s success will depend on the attractiveness of interest rates offered by banks.
Third, for banks the attractiveness of offering this scheme will depend on whether the gold deposits will count towards CRR (cash reserve ratio) and SLR (statutory liquidity ratio) requirements. If banks are allowed to include these deposits towards meeting their CRR requirements, it could help release funds for onward lending in the economy. However, banks will need to hedge against the price risk.
Overall, the Gold Monetisation Scheme is an interesting concept for India that could increase the recycling of domestic gold, monetize some physical savings, and to some extent, also reduce dependence on gold imports
increase the recycling of domestically held gold and also reduce jewellers’ reliance on imported gold. According to the World Gold Council’s estimates, Indian households and other institutions own around 22000 MT (metric tonne) of gold. Even if the scheme is able to create only 100-200MT in gold deposits every year over the next few years, it could help reduce the gold import bill by 10-20% (USD3-6bn) annually.
Second, this may still turn out to be an attractive option for households and temple trusts which currently earn nothing on gold, and now could get a return and storage as well. Real demand and the scheme’s success will depend on the attractiveness of interest rates offered by banks.
Third, for banks the attractiveness of offering this scheme will depend on whether the gold deposits will count towards CRR (cash reserve ratio) and SLR (statutory liquidity ratio) requirements. If banks are allowed to include these deposits towards meeting their CRR requirements, it could help release funds for onward lending in the economy. However, banks will need to hedge against the price risk.
Overall, the Gold Monetisation Scheme is an interesting concept for India that could increase the recycling of domestic gold, monetize some physical savings, and to some extent, also reduce dependence on gold imports
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