New Delhi:
In a significant clarification, Finance Minister Nirmala Sitharaman addressed the Lok Sabha on Monday to dispel concerns about India’s increasing gold reserves. She emphasized that the surge in gold holdings is not a move to replace the US dollar as an international currency, but rather a strategic decision to diversify India’s foreign exchange reserves.
The global landscape of central banks’ reserve management has seen a notable shift towards gold in recent years. Since the US abandoned the gold standard in 1971, gold’s share in global reserves has risen from 6% in 2006 to about 11% in 2024. Countries such as China, India, Poland, and Turkey have been at the forefront of this trend, aggressively accumulating gold.
In India, the traditional preference for gold as a secure and liquid investment continues to drive demand. Households, small businesses, and women in particular view gold as a reliable asset, contributing to the strong and growing demand for gold in the country.
Sitharaman responded to concerns raised by Congress MP Manish Tiwari about whether the increased gold holdings signaled a shift away from the US dollar as a dominant settlement mechanism. She reassured that the Reserve Bank of India’s (RBI) gold purchases are aimed at maintaining a balanced reserve portfolio, rather than indicating any move away from the dollar.
The RBI has been actively buying gold to mitigate risks associated with currency volatility and revaluation losses. With the US dollar still a dominant component of India’s foreign exchange reserves, the RBI’s strategy includes holding reserves in other currencies and gold to ensure diversification. This approach is part of a broader global trend where central banks are seeking to reduce their exposure to potential revaluation losses by diversifying their reserve assets.
While global discussions around de-dollarization have gained momentum, with some countries exploring alternatives for trade and reserves, Sitharaman made it clear that India’s increased gold accumulation does not signal a shift towards an alternative international settlement mechanism. The move is purely a risk management strategy to ensure the stability and diversity of India’s foreign exchange reserves.
