Digital Gold

The Government had launched the Sovereign Gold Bonds Scheme (SGBS) on November 5, 2015. The main objectives of the scheme were to reduce the demand for physical gold and shift a part of the gold imported every year for investment purpose into financial savings. There is a concern that the SGBS is currently not backed by physical gold. The Committee recommends that both the GMS and SGBS be revamped to make them more attractive to investors. This could be facilitated through the proposed Bullion Exchanges. The Committee recommends a new Gold Savings Account (GSA), as in its current form, it has not been able to mobilize the necessary resources. It is noted that gold is purchased throughout the nation as a savings instrument. It is further noted that these customers purchase gold coins or jewellery after paying labour charges, taxes etc., all of which are forsaken at the time of encashment or exchange. Moreover, while the people living in urban areas may have the option of other financial tools to choose from, the citizens living in the rural areas often shy away from complex financial products and therefore choose to invest in gold, which also provides them an opportunity to encash the gold/jewellery when required.

It is for these very people that the new GSA is being proposed, as it would provide the citizens, particularly from rural areas, with the opportunity to save in gold with no losses due to labour charges and taxes at the time of encashment. The bank could further back the savings by procuring gold from other domestic suppliers through the proposed Bullion Exchanges. Simultaneously, incentives need to be given for digital payments which could encourage shift in gold transactions and assist in migration to a formal marketplace.

Gold Saving Account [ GSA ] 

Gold is purchased in India as a savings instrument that may be encashed instantly or exchanged for jewellery as and when required. It is further noted that these customers purchase gold coins or jewellery after paying labour charges, taxes etc., all of which are forsaken at the time of encashment or exchange. Moreover, while the people living in urban areas may have the option of other financial tools to choose from, the citizens living in the rural areas often shy away from complex financial products and therefore choose to invest in gold. It is essential to recognise that the citizens living in the rural areas that choose to invest their savings in gold do so as it permits them an opportunity to encash the gold/jewellery immediately if the need be. It is for these very people that the new revamped Gold Savings Account (GSA) is proposed, as it would provide the citizens with the opportunity to save in gold with no losses due to labour charges and taxes at the time of encashment.

The launch of the revamped GSA is eased due to the huge success of the Pradhan Mantri Jan Dhan Yojna (PMJDY), which was dubbed as the world’s biggest financial inclusion drive. It is pertinent to point out that the beneficiaries were primarily in rural India.

A GSA may be opened by banks for their customers, will go beyond the scope of GMS deposit, and allow investors and individuals to deposit INR to accumulate their savings in gold. The GSA shall offer the opportunity to build up an investment in gold over a period of time by virtually saving in gold terms rather than INR terms. In essence, the GSA is similar to any other savings interest-bearing deposit account held at a bank or another financial institution that provides an interest rate except that the deposit made in rupees will be translated in physical gold held by the bank or the financial institution. When a customer deposits cash in his or her account, the bank will credit grams of gold. The price of gold will be based on the date on which the deposit is made.

The GSA can be a linked to a demat account which would enable the linkage of digital gold accounts across banks through the proposed Bullion exchange and its vaulting infrastructure. This is similar to the current linkage in stocks, where banks, demat accounts, stock exchanges and depositaries are linked in a transparent manner.

Connect the banks and the various digital gold providers, including the sovereign gold bonds, revamped gold savings account etc.

The Sovereign Gold Bond Scheme (SGBS)

- Introduce a new financial product – the Gold Savings Account (GSA)

- Replace the SGBS with the GSA

- Utilise the exiting SGBS by extending the Gold (Metal) Loan through banks, to mitigate the exposure of speculative profit/loss that may occur by backing the digital gold with physical gold