This refers to the article “Right time for RBI to sell gold” ( Business Line , August 24). As stated, gold forms only 7.5 per cent of the RBI's forex reserve holdings in value terms. Hence, it may not be prudent at this stage to sell gold and book profits. As for the extra cover the sale will provide to fiscal deficit, there are several other methods to manage government finances, provided there is political will.

As there is volatility in the value of various components of forex reserves and considering the responsibility the RBI is holding, which isn't comparable with other central banks, even if profits are booked by sale of gold, they should be used only to augment the RBI's reserves, which aren't growing with the size of the balance- sheet.

There cannot be two views on the need for a re-look at the current gold holdings to make them tradable and productive. During 2009-10, the RBI purchased nearly 200 tonnes of gold from IMF. Even with this addition, the RBI accounts for less than three per cent of the gross gold-holdings of all central banks.

Viewed from a commercial angle, IMF chose to sell gold when it felt that prices had peaked. The RBI would have, in fact, gained approximately Rs 10,000 crore, if the purchase was made a year earlier.

At this stage, looking at the way in which the dollar and other currencies are behaving, there is a case for the RBI to augment its gold portfolio under forex reserves.

The money value, size of the RBI's balance- sheet and the strength of major currencies have undergone change in the past 55 years, following incorporation of the requirement in the RBI Act that ‘the aggregate value of gold should not be less than Rs115 crore'. Hence it is time for a review of the composition of the assets held.

M. G. Warrier

Mumbai

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