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Gold monetisation scheme by the Government of India...

 -- Published: Wednesday, 20 May 2015 | Print  | Disqus 

Manish Thatte


Just today I have read in the newspapers that the RBI / GOI is considering to implement the gold monetisation scheme through the commercial banks in the country.


The salient features of the scheme will be:

1) Banks are allowed to accept deposits of as low as 30 grams of gold from the Indian public

2) The banks will be free to fix the interest rates on such deposits

3) The depositor will be free to withdraw his / her deposits after a minimum period of 1 year in the form of interest + principal payable in gold OR rupees (at the prevalent local gold rate)

4) Such income from gold deposits in banks will be free from income tax / capital gains tax

5) The banks will be able to use such gold deposits

          a) To lend to jewellers

          b) To deposit with the RBI in lieu of CRR / SLR limits

          c) To sell it in the foreign exchange market to raise foreign currency if needed


My thoughts:

0) First and foremost I congratulate the Government for coming out with this scheme. I would even go further and suggest that the Government goes and legalises payment of taxes in Gold and Silver.

1) The reduction in the amount of gold deposit is a master stroke, in the sense, that now the general public which holds even some gold will be able to capitalise it and bring it into the banking system. This will also curb the menace of the shadow economy to some extent, because, most small gold buyers pay cash to buy their gold. And such cash promptly finds its way into the shadow economy. This also takes care of the very reason as to why previously such schemes failed, wherein depositors were encouraged to deposit more than 500 gms of gold. (Very few individuals have 500 gms of unused gold).

2) Removing the monopoly of the SBI in accepting gold deposits is another master stroke. This will encourage competition amongst the banks to attract more and more gold deposits.

3) Giving freedom to the banks to fix the interest rates on the gold deposits will also encourage free competition amongst the banks to attract more gold depositors

4) What-ever the superficial reasons the government and RBI may state, this is a very correct step in the direction of accepting again that GOLD IS IN FACT MONEY. All MONEY AND especially GOLD should be able to be deposited into a bank and should be able to be put to good use and should be able to earn interest... Likewise, since now a gold deposit will be treated as good as a bank fixed deposit, people can also raise loans on their gold accounts. This will encourage more and more people to come into the mainstream economy, especially marginal farmers and rural folk.

5) This single master stroke has the potential to mobilise enormous quantities of gold and bring it out of the shadow economy and finance the needs of a fast growing nation such as India.

6) My thoughts as to the effect of such a scheme on the forex balance donít agree with the Government, though. Now that such a scheme has come into existence, and Gold is once again being treated as money, more people will be encouraged to invest their savings in interest-bearing gold. And why should they not? Gold is the best form of money.

7) So, the balance of payments problem will not go away overnight. But even so, I prefer to let the Indian public invest more of their savings into gold. If and when you can afford it, buy it. It is as simple as that.

8) Here the banks will of course resort to fractional reserve banking, but even so, as more and more people join the mainstream economy, the real and true size and enormity of the Indian economy can be harnessed to at least some extent. This scheme has the same potential as the recently launched Prime Minister's Savings bank deposit scheme, which very easily mobilised many thousands of crore rupees all over the country.

9) Jewellers form a small but important section of the economy. In the days of yore, it was the jewellers who provided banking / lending services to not just the general public, but to even the various kingdoms of Ancient India.

10) The banks being able to deposit their gold with the RBI in lieu of CRR / SLR is just icing on the cake. I am eagerly waiting to see the gold reserves of the RBI zoom to unprecedented levels...

11) Such gold mobilised by the RBI can be very easily used to tide over any crisis, especially supply of crude oil and other critical medicines / infrastructure / hardware / minerals. Also, if there is plenty of gold with the RBI, it helps to keep the rupee stable as against the other world currencies.

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 -- Published: Wednesday, 20 May 2015 | E-Mail  | Print  | Source:

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