The Hindu Business Line : Forex reserves management

One read “RBI moves forex assets to ‘safer’ avenues” (Business Line, July 19) with some satisfaction and an equal amount of concern. It looks as though there was some improvement in the return from foreign currency assets and gold during 2006-07 (4.6 per cent) over the previous year (3.9 per cent). Let us hope the 2007-08 results are also good.

We have been highlighting the satisfactory position of forex reserves (always comparing with the 1991 crisis) for long. Now, it is time for the RBI to think beyond IMF guidelines, consolidate and diversify forex investments to the country’s advantage.

Although the RBI and the Centre have toyed with the idea of a gold bank, it has perhaps been shelved, probably leaving to the private sector/individuals the game of gambling with the metals. The time is ripe for the RBI and the Centre to give gold the status it deserves in overall forex management policy (after all, although it had to be shipped with great difficulty, it was gold that came to our rescue during the 1991 forex crisis).

In forex, gold must get a position on a par with, if not higher than the US dollar. This would require an arrangement in India, through the RBI or any other duly constituted authority, to trade in ‘paper gold’ against genuine tradeable gold stocks. Mutual fund ETFs are no substitute for this.

To know the real worth, a census of gold holdings in the country, arrangements for registration if the holdings are beyond, say, 5kg and an ongoing monitoring of further accruals are details the authorities concerned may have to consider if the yellow metal has to be restored its original status of esteem.

This, if done, will also better the country’s worth as more value is hidden in this metal than seen from outside.

M. G. Warrier Mumbai