Safeguarding sovereign gold bonds - Outside View by S.S. TARAPORE(June 2015 Article)
Safeguarding sovereign gold bonds - Outside View by S.S. TARAPORE
Article by S S Tarapore published in June 2015.
Excerpts:
"Bearing the Risks of Gold Prices and Exchange Rates: The Draft Scheme does not provide for covering the risks of either the gold price or the US $-INR exchange risk, at least in the first year. M.G.Warrier, a perceptive writer on these issues, points out that the absence of gold–backing might impact the scheme. He argues that one way out would be to increase the gold component of the country's foreign exchange reserves (Business Standard June 22, 2015). While increasing the gold component of the reserves is highly desirable, it should not be only contingent on the issue of Sovereign Gold Bond, but on the merits for sharply raising the gold proportion in composition offorex country's reserves, from the present level of 5.5 per cent of the total reserves, as part of an overall strategy of diversifying the forex reserves. More importantly, the final scheme should clearly state that both, the risk in the international price of gold as also the risk of changes in the US$-INR rate, would be borne by government. As V.K.Sharma puts it, the government should be fully aware of the potential hit on the fisc (Business Standard June 20, 2015). The risk just cannot be wished away or left vague and post facto pushed on to the Reserve Bank of India."
Article by S S Tarapore published in June 2015.
Excerpts:
"Bearing the Risks of Gold Prices and Exchange Rates: The Draft Scheme does not provide for covering the risks of either the gold price or the US $-INR exchange risk, at least in the first year. M.G.Warrier, a perceptive writer on these issues, points out that the absence of gold–backing might impact the scheme. He argues that one way out would be to increase the gold component of the country's foreign exchange reserves (Business Standard June 22, 2015). While increasing the gold component of the reserves is highly desirable, it should not be only contingent on the issue of Sovereign Gold Bond, but on the merits for sharply raising the gold proportion in composition offorex country's reserves, from the present level of 5.5 per cent of the total reserves, as part of an overall strategy of diversifying the forex reserves. More importantly, the final scheme should clearly state that both, the risk in the international price of gold as also the risk of changes in the US$-INR rate, would be borne by government. As V.K.Sharma puts it, the government should be fully aware of the potential hit on the fisc (Business Standard June 20, 2015). The risk just cannot be wished away or left vague and post facto pushed on to the Reserve Bank of India."
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