RBI reserves are not money owned by Indian govt - they are foreign exchange parked with RBI by various entities against which RBI releases Indian currency - and whenever these entities want to surrender Indian currency and take out foreign currency, RBI has to oblige.
Even a 10 billion dollar outflow over and above usual demands results in a 5-10% depreciation of Rupee - and vice versa - even a 10 billion inflow over and above the normal makes the Rupee appreciate.
That means that some 3% of our total reserves changing direction of flow in a fluctuating manner can cause our currency to see saw. We have all seen this over the last 5 years - very scary.
Even more scary is the fact that we are importing (50 plus) billion dollars worth of gold every year. We cant afford to do that and still have a stable currency - a self fulfilling vicious cycle of currency depreciation - gold appreciation - more investment into gold - more currency depreciation - as nauseum - can set in and depreciate our currency a lot within a short time.
50 billion dollars is some 2-3% of our GDP.
And total value of gold in India is some 1 trillion dollars (58 lakh crore Rupees) according to a recent news article. That is almost as much as our stock market is worth.
Too much. This has to stop or govt has to stop it - either a big import duty or a full stop on e-gold (still only 11000 crores last I heard which is peanuts compared to physical gold).
In which case gold will be finished. I would be quite careful with gold - too many uncertainties.
Even a 10 billion dollar outflow over and above usual demands results in a 5-10% depreciation of Rupee - and vice versa - even a 10 billion inflow over and above the normal makes the Rupee appreciate.
That means that some 3% of our total reserves changing direction of flow in a fluctuating manner can cause our currency to see saw. We have all seen this over the last 5 years - very scary.
Even more scary is the fact that we are importing (50 plus) billion dollars worth of gold every year. We cant afford to do that and still have a stable currency - a self fulfilling vicious cycle of currency depreciation - gold appreciation - more investment into gold - more currency depreciation - as nauseum - can set in and depreciate our currency a lot within a short time.
50 billion dollars is some 2-3% of our GDP.
And total value of gold in India is some 1 trillion dollars (58 lakh crore Rupees) according to a recent news article. That is almost as much as our stock market is worth.
Too much. This has to stop or govt has to stop it - either a big import duty or a full stop on e-gold (still only 11000 crores last I heard which is peanuts compared to physical gold).
In which case gold will be finished. I would be quite careful with gold - too many uncertainties.
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