Shattered trust: Why India is returning Gold reserves to the Country
The central Bank of India has accelerated the repatriation of its gold reserves, deciding to concentrate assets inside the country. The state holds more than 65% of the reserves of the precious metal. The reason for this was the freezing of Russian reserves by Western countries after the start of the special operation in Ukraine, which the Indian regulator did not like. The decision of the Reserve Bank of India to return gold from abroad is not so much an economic step as a strategic and geopolitical one, experts say. Repatriation allows India to strengthen sovereignty over its reserves and reduce dependence on external jurisdiction. Whether the return of gold will become a new trend is in the Izvestia article.
Return to the homeland
India's gold reserves, concentrated in the country, have reached a historic high. The state holds more than 65% of the total volume of the precious metal. For comparison, in September 2022, the share of gold in domestic storage was 38%. Bloomberg writes about this.
In the first six months of the fiscal year that began in April, the Reserve Bank of India returned about 64 tons of gold to the country. In value terms, the share of metal in total reserves at the end of September was 13.92%. In total, in September, the Central Bank of India had 880 tons of gold, of which 576 tons were in internal storage. This indicator is a historical maximum. In total, over the past four years, the Central Bank of the country has repatriated 280 tons of gold.
Previously, the Reserve Bank of India preferred to keep most of its gold assets abroad. Their main share was concentrated in the Bank of England and the Bank for International Settlements.
The Central Bank of India did not explain the reason for the exchange rate change. However, according to some economists, such a step may be aimed at strengthening control over the precious metal after the freezing of Russian assets by the G7 countries.
At the same time, last month, Indian Finance Minister Nirmala Sitaraman said that the country's Reserve Bank was making a "very balanced decision" to diversify its reserves.
The Central Bank of India, by the way, is one of the world's largest buyers of gold. In this way, he seeks to reduce dependence on the US dollar. To this end, the regulator is constantly reducing its investments in US Treasury bonds.
A strategic step
The decision of the G7 to freeze about $300 billion of the Bank of Russia's international reserves has become a historic milestone, says Ilona Mizova, a political scientist and expert in world politics. It proved that even the most reliable and seemingly apolitical assets can be used as a tool in a geopolitical confrontation.
The repatriation by countries of their gold stored abroad is a relatively new, but gaining momentum trend, says Evgeny Smirnov, Doctor of Economics, Head of the Department of World Economy and International Economic Relations at the State University of Management. The global financial system is gradually fragmenting, and many developing countries do not want their assets to be exposed to additional risks.
— After the freezing of Russian reserves, confidence in Western financial institutions has declined sharply. Storing gold abroad has ceased to be a guarantee of security: now countries understand that under the conditions of sanctions pressure, even physical assets can be blocked," says Yulia Kuznetsova, investment adviser in the registry of the Central Bank of the Russian Federation, founder of the online university of Finance.
The decision of the Reserve Bank of India to return gold from abroad is not so much an economic step as a strategic and geopolitical one, the Izvestia interlocutor believes. The repatriation of precious metals allows India to strengthen sovereignty over its reserves and reduce dependence on external jurisdiction.
— By returning gold, India protects it from the risk of unilateral sanctions or political blackmail, gradually depriving Western partners of leverage. For such an ambitious and, despite years of colonization and democratization, strategically independent country, dependence on the infrastructure of potentially hostile blocs began to be perceived as an unacceptable risk," explains Mizova.
At the same time, the management of the Reserve Bank of India explains the transfer of gold to the country by having its own vaults, calling it a standard procedure. However, until September 2022, New Delhi stored twice as much precious metal abroad, and it is impossible not to consider its repatriation as a powerful political signal reflecting a shift in the global paradigm of financial security, the political scientist is sure.
It is also important that gold is becoming an increasingly popular safe haven asset, allowing large developing countries to abandon the dollar, Evgeny Smirnov draws attention. And India, where the share of gold in the total structure of gold and foreign exchange reserves has increased from 7% to 15% over the past decade, is no exception.
— Today, in the face of many increasing global risks, more than ever, it is the place where gold is stored that plays a key role. By distancing its gold from Western countries, India is also solving the important task of strategically diversifying its foreign exchange reserves, the economist is convinced.
In addition, gold stored in the country is easier to use in crisis scenarios, such as currency devaluation, falling confidence in the dollar, or the need to provide liquidity, Kuznetsova confirms.
Vote of no confidence
Yulia Kuznetsova believes that the emerging trend towards gold repatriation is alarming for Europe. The more developing countries withdraw their reserves, the weaker confidence in Western storage facilities and infrastructure in London and Switzerland becomes. All this can accelerate the process of de-dollarization and the redistribution of world power centers towards Asia, the expert predicts.
There are several aspects that show how the repatriation of gold will affect Europe, Ilona Mizova believes. First of all, India's position is a blow to the reputation of the UK, which is losing its "safe harbor" status.
— London has been the center of the world's gold markets and a benchmark of reliability for centuries. India's actions are a public vote of no confidence," the political scientist is convinced.
The second aspect is the weakening of financial influence, since gold in vaults is an asset that provides liquidity and is part of the financial ecosystem, the Izvestia interlocutor points out. And its outflow is a direct reduction in the financial activity and influence of European centers.
— For Europe, this is a signal that the instrumentalization of the financial system for geopolitical purposes has its price. The countdown begins to the era when the West could dictate the rules in global financial markets without alternative," Mizova is convinced.
India's actions have demonstrated to the whole world that the country is independent in managing its assets and is not subject to generally accepted trends or rules, says lawyer-economist Yuri Kapshtyk.
— And India can afford it, because the growth rates of its GDP and economic development, especially in industries such as mechanical engineering and metalworking, are high. Currently, India is quite competitive in the global market, and the presence of gold reserves in the country guarantees the security of transactions with other countries," he said.
New security architecture
India's decision to return gold to the country may set a precedent, admits Yulia Kuznetsova. Earlier, Germany, Turkey and Venezuela did the same. The example of India can strengthen the trend among the BRICS countries and the Global South.
— It's not just about gold, but also about reviewing the entire asset reserve system. In a world where "freezing" has become a policy tool, countries are striving to regain control of what is their property," the Izvestia interlocutor emphasizes.
The probability that India's actions will create a stable trend is extremely high, Ilona Mizova agrees. And the contours of this process are already being observed — several other central banks are monitoring the return of gold. We are talking about the BRICS+ countries and other states that disagree with the Western foreign policy agenda.
— The logic of "protection from sanctions" is universal. The precedent with Russia has made every country ask the question, "What if we're next?" For many, the answer is to strive for greater financial independence," the expert explains.
Europe has departed from generally accepted financial rules and obligations towards Russia, Yuri Kapshtyk recalls. This made many countries think that they might be next.
— In fact, finding gold in their possession will be a lever of pressure in order to lobby their interests. And India was partly a pioneer in this process," the economist emphasizes.
However, this trend will not be total, says Mizova. The US G7 allies are unlikely to join it, as their security and financial system are inextricably linked. But for the Global South and countries striving for multipolarity, gold repatriation may become the new norm.
— The world is moving from a global, centralized financial system to a fragmented and regionalized one. The return of gold is a vote for a new global security architecture where sovereignty and protection from external pressure will be valued above all else. Before our eyes, gold is once again becoming not only a financial asset, but also an act of sovereign will. Hopefully, in the near future we will be able to observe other "returns" of reserves from bank vaults to the national citadels of new centers of power," Misova summarizes.
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