Gold Bullion Certificates "Could Be Encouraged by Indian Government & Central Bank"

INDIA'S government was "justified" in raising the duty on Gold Bullion imports this month, with the move coming at opportune time for reforms such as gold certificates that aim at reducing gold's impact on the country's current account deficit, a leading industry figures has said.

Rajan Venkatesh, managing director of Scotia Mocatta, the bullion division of the Canadian Bank of Nova Scotia, adds that "monetizing gold" could help alleviate the reliance on gold imports and therefore help the country's trade balance.

"We feel it is an opportune time for reforms like gold certificates, gold accumulation plans, etc., to be encouraged by the government and the Reserve Bank of India," Venkateshsaid in an interview this week.

"[Such vehicles]can be structured such that physical imports can be reduced or postponed to a later date based on the maturity profile of the deposits."

On March 16, Indian finance minister Pranab Mukherjee doubled the duty on Gold Bullion imports for the second time this year.

"As [gold] is perceived to be a dead asset, this is justified," says Venkatesh, who adds that he does not believe the duty hike will diminish appetite for gold in India.

"To reduce imports, they should instead work on monetizing the existing gold held in households in India, which is estimated at around 18,000 tonnes."

Since the import duty hike was announced, India has been hit by a nationwide strike of gold jewelers. Indian press reports that some people have taken to giving certificates at weddings instead of gold, which are redeemable for jewelry once the strike ends.

One country whose central bankers have openly considered Gold Bullion certificates is Vietnam, whose former central bank governor advocated gold certificates last year.

Turkey meantime is also considering plans aimed at encouraging people to deposit Gold Bullion with the banking system. This week, Turkey's central bank doubled the proportion of Turkish Lira reserves its banks can hold as Gold Bullion from 10% to 20%. At the same time, the proportion of foreign exchange reserves banks can hold as gold was cut from 10% to zero.

In recent months, India, Turkey and Vietnam have all experienced exchange rate and balance of payments problems.

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