Focus on retail holders to get more gold back into system: IGPC chief Arvind Sahay

The India Gold Policy Centre (IGPC) at IIM-Ahmedabad, an independent research think-tank on gold and a research arm of the World Gold Council (WGC), recently held a conference on Gold and Gold Markets 2019.

IGPC Chairperson Prof. Arvind Sahay spoke to Reema Sharma of Zee Media regarding few pressing issues on the Gold Monetisation Scheme on the sidelines of the conference.

Excerpts...

Q. Recently there were some reports that banks may open metal account deposit under Gold Monetisation Scheme. Your views on banks opening metal account.

If there is a gold account which is available to individuals then what you are essentially telling them is that gold is kind of fungible with cash. Rather than holding gold in their lockers or in other private space, they can deposit it in a formal account. So just like a saving account or fixed deposit account, one can have a gold metal account. That one can deposit into and withdraw from. Therefore, gold becomes a part of financial system. So any formation of a gold metal account which the banking system may be allowed to have can increase that much liquidity into the system - liquidity that is locked up.

Q.Why would banks want to open a metal account?

Banks might want to open such an account perhaps because it adds to the deposit base. Or it can be used as CRR. Or it offers opportunities to increase revenues and profits directly. It has to be fungible with rupees which also means there has to be some valuation, some hedging for the stability of the bank and of the banking system. Consequently, the RBI may also have to make some changes in the RBI Act and in the Banking Act. The legal and regulatory framework must take into account the incentives that each player needs - the customer to want to deposit gold with the bank; the bank to want to open fold metal accounts; the RBI to be comfortable with banks opening fold metal accounts. If there is a gold metal account, it is one way to achieve the government`s aim of having gold as a financial asset.

Q. Your views on RBI allowing temples, government entities and charitable trusts in Gold Monetization Scheme

You have to first ask the question as to how much gold is lying with temples and how much is in possession of individuals. As per the latest estimate (that I am aware of) there are 24,000 tonnes of private gold which are lying with individual households. Temple gold is roughly 500-600 tonnes. Now if you compare both, gold in possession of temples is very small in amount. So the scale is in private gold which should be the main focus. If you want to get more gold back into the system, retail gold holders are the ones that should be focused upon.