Foreign exchange reserves of India and China slumped in January-February and both the countries may go for more accumulation of gold which may have an impact on the global bullion markets.
Even as recession is wreaking havoc across economies, more and more countries, especially Asian economies, are moving to gold as reserves.
The foreign exchange reserves have declined by $62.43 billion since the end of March 2008. India’s total gold holding is between 10,000 tones and 15,000 tones of which the Reserve Bank of India has only around 400 tones. Internationally, the total gold reserves (amount of gold ever mined) is between 125,000 tones and 130,000 tones, of which roughly 25,000 tones is held by various central banks. Most of that is held by the central banks of the United States, Germany, Switzerland, France and Italy.
While the share of gold in total foreign exchange reserves is very high in United States and European countries, the share is comparatively lower in Asian countries. It will make China and India to add more gold to their foreign exchange reserves.
India is constantly accumulating its foreign exchange reserves to meet the requirements of its increasing current account deficit and to protect against volatile capital flows. With the growth of the domestic industry and higher oil prices in international markets, the current account deficit is expected to widen in the coming years.
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