Is the Indian Rupee backed by Gold?
Reserve Bank of India [RBI] is divided into two Divisions, Banking Division and Issue Division from the point of view of accounting. The Issue Division restricts itself to the Liability of the Currency in circulation in the country along with some currency in its own chest.
This currency belongs to the Govt. of India, hence it is a liability and its value on 30th June 2017 is Rs 15,06,331 crores. On the Asset side, we should expect the same value of Gold if it is backed by Gold, but it only shows Rs 69,030 crores, which is barely 4.58%. To make up for the gap the RBI transfers Foreign Currency Assets worth Rs 14,36,689 crores from its Banking Division.
The Indian rupee is backed mainly by Foreign Currency ( 95.5%) and some Gold ( 4.5%). RBI or the Govt of India does not promise to back the INR with Gold. No country in the world backs its currency.
The Central Bank of the USA has the largest quantity of gold. Once upon a time, it used to back every dollar with 1.5 gms of gold. In 1971 under Nixon, the USA withdrew the promise of 1.5 gms of gold for every dollar.
RBI holds around 618 tonnes of Gold ( 2019). The valuation of these Gold changes from time to time depending on the market price of Gold. This is held in Nagpur, but a part of this is also held in London which was the Gold returned to India after Chandrashekhar Government had to transfer the 47 tonnes of Gold to London as collateral for a $405 million loan in Foreign Exchange.
The RBI Act 1956 mentions the Minimum Reserve System ( MRS ) as far as backing paper money with Gold is concerned. The MRS says that the RBI has to hold Rs 200 crores worth of assets to back paper currency, out of which Rs 115 crores should be the value of Gold held physically by the RBI. As can be seen from the balance sheet, RBI has better reserves than required by MRS.
The following are the top 20 countries according to World Gold Council's latest rankings (as of September 2019)
Rank/Country/Organization/Gold holdings(in metric tons)/Gold's share of forex reserves
1 United States 8,133.5 MT 76.0%
2 Germany 3,366.8 71.9%
— International Monetary Fund 2,814.0 N/A
3 Italy 2,451.8 67.4%
4 France 2,436.1 60.8%
5 Russia 2,219.2 19.6%
6 China 1,936.5 2.8%
7 Switzerland 1,040.0 5.7%
8 Japan 765.2 2.7%
9 India 618.2 6.5%
10 Netherlands 612.5 67.7%
— Logo European Central Bank.svg European Central Bank 504.8 27.0%
11 Republic of China 423.6 4.0%
12 Portugal 382.5 64.7%
13 Kazakhstan 380.0 63.0%
14 Uzbekistan 327.8 54.3%
15 Saudi Arabia 323.1 2.8%
16 United Kingdom 310.3 8.5%
17 Lebanon 286.8 26.0%
18 Spain 281.6 17.6%
19 Austria 280.0 52.1%
20 Poland 228.2 8.9%
Reserve Bank of India [RBI] is divided into two Divisions, Banking Division and Issue Division from the point of view of accounting. The Issue Division restricts itself to the Liability of the Currency in circulation in the country along with some currency in its own chest.
This currency belongs to the Govt. of India, hence it is a liability and its value on 30th June 2017 is Rs 15,06,331 crores. On the Asset side, we should expect the same value of Gold if it is backed by Gold, but it only shows Rs 69,030 crores, which is barely 4.58%. To make up for the gap the RBI transfers Foreign Currency Assets worth Rs 14,36,689 crores from its Banking Division.
The Indian rupee is backed mainly by Foreign Currency ( 95.5%) and some Gold ( 4.5%). RBI or the Govt of India does not promise to back the INR with Gold. No country in the world backs its currency.
The Central Bank of the USA has the largest quantity of gold. Once upon a time, it used to back every dollar with 1.5 gms of gold. In 1971 under Nixon, the USA withdrew the promise of 1.5 gms of gold for every dollar.
RBI holds around 618 tonnes of Gold ( 2019). The valuation of these Gold changes from time to time depending on the market price of Gold. This is held in Nagpur, but a part of this is also held in London which was the Gold returned to India after Chandrashekhar Government had to transfer the 47 tonnes of Gold to London as collateral for a $405 million loan in Foreign Exchange.
The RBI Act 1956 mentions the Minimum Reserve System ( MRS ) as far as backing paper money with Gold is concerned. The MRS says that the RBI has to hold Rs 200 crores worth of assets to back paper currency, out of which Rs 115 crores should be the value of Gold held physically by the RBI. As can be seen from the balance sheet, RBI has better reserves than required by MRS.
The following are the top 20 countries according to World Gold Council's latest rankings (as of September 2019)
Rank/Country/Organization/Gold holdings(in metric tons)/Gold's share of forex reserves
1 United States 8,133.5 MT 76.0%
2 Germany 3,366.8 71.9%
— International Monetary Fund 2,814.0 N/A
3 Italy 2,451.8 67.4%
4 France 2,436.1 60.8%
5 Russia 2,219.2 19.6%
6 China 1,936.5 2.8%
7 Switzerland 1,040.0 5.7%
8 Japan 765.2 2.7%
9 India 618.2 6.5%
10 Netherlands 612.5 67.7%
— Logo European Central Bank.svg European Central Bank 504.8 27.0%
11 Republic of China 423.6 4.0%
12 Portugal 382.5 64.7%
13 Kazakhstan 380.0 63.0%
14 Uzbekistan 327.8 54.3%
15 Saudi Arabia 323.1 2.8%
16 United Kingdom 310.3 8.5%
17 Lebanon 286.8 26.0%
18 Spain 281.6 17.6%
19 Austria 280.0 52.1%
20 Poland 228.2 8.9%
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