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India's central bank opposes letting commercial banks count gold as money

Section: Daily Dispatches

RBI Opposes Finance Ministry Plan to Use Gold Deposits as Bank CRR

From The Times of India, Mumbai
Monday, June 22, 2015

NEW DELHI -- The Centre's attempt at monetising gold lying with Indian households may face a roadblock with the Reserve Bank of India writing to the finance ministry opposing a plan to use gold deposits for bank Cash Reserve Ratios.

Finance ministry sources told The Times that in its reservation against the move, the RBI said banks may hoard excess gold if it is included in Cash Reserve Ratios and the existing rules do not permit use of gold this way.

Gold in Cash Reserve Ratio will weaken CRR's effectiveness as a monetary policy tool and may expose RBI's reserves to risk from commodity prices, the central bank has told the finance ministry.

Times Consulting Editor Mythili Bhusnurmath said the RBI's reservations are mainly because it sees CRR as a monetary policy tool. "Its reservations are valid because RBI's monetary policy mechanism is weak and if you allow CRR to be held in the form of gold, then it will further weaken policy."

Playing down on any impact on the scheme, Bhusnurmath said RBI's reservations against the scheme in its current form should be seen only as those of a monetary policy authority.

RBI said CRR reserves are usually used to stabilize the financial system but allowing gold as CRR will expose the central bank's reserve to commodity risk. It also said that allowing banks to use gold as a part of CRR would mean excess hoarding of gold by the banks, which is the central bank feels is not desirable in the financial system. ...

... For the remainder of the report:

http://economictimes.indiatimes.com/news/economy/finance/rbi-opposes-fin...



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