RBI does not agree with Centre in Letting Gold Deposits as Bank CRR

Published Date : Jun 23, 2015

Even though the Indian Government is attempting to monetize the gold in the Indian households, the Reserve bank of India is not happy with the move. The central bank is writing to the Indian Finance Ministry to oppose the plan regarding the usage of the gold deposits as bank Cash Reserve Ratio. According to the sources from the Finance Ministry, RBI has pointed out that the move might lead to the bank hoarding excess gold if it is included in CRR. Also, the existing rules do not allow the usage of gold as bank CRR. The RBI has further mentioned that gold will weaken the effectiveness of CRR and might expose the central bank’s reserves to risk from commodity prices. 

According to the industry experts, RBI’s reservations are mainly because it takes CRR as a monetary policy tool. The monetary policy mechanism of the central bank is weak and if CRR is allowed to be held in the form of gold, it will further undermine the policy. RBI has mentioned that the CRR reserves are used for stabilizing the financial system. Gold as CRR will expose the bank’s reserve to commodity risks. The central bank does not find it desirable to let the banks hoard excess gold as a part of CRR. Though the central bank has made its stance clear, industry sources said that the chances of the finance ministry changing its plans are slim. The finance ministry has collected the comments of the stakeholders in the gold monetisation scheme and is expected to talk to RBI soon. As gold is available in the Indian financial system, the finance ministry does not want to left it unaccounted. As gold is already allowed as a part of SLR, the finance ministry wants it to be allowed as CRR too.