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Will gold monetization scheme take off? Research Team | Posted On Friday, September 04,2015, 06:17 PM

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Will gold monetization scheme take off?



Ours is a nation which lives on gold. The combined amount of gold and gold jewelry in all households in India, is more than the combined gold reserves of USA, IMF, Switzerland and Germany.

Investing in gold and gold jewelry has been an essential part of Indian culture and tradition for centuries. There’s more…Indians never sell their gold and gold jewelry, preferring to pass it on, from generation to generation. Mothers pass on gold jewelry to their daughters, at their time of marriage.

 “There's Something About Gold That Brings Out The Avarice In Men”.

Gold lying idle, locked up in your cupboard at home, benefits no one. Indians buy gold and gold jewelry and lock it up in cupboards and bank lockers. India imports gold in excess of 900-1000 tonnes a year, to satisfy this greed and lust for gold. This costs the Government over $ 35 Billion Dollars in imports.

The Government is now fed up of importing all this gold, which has sent our import bills soaring. To solve this problem the Government has introduced the gold monetization scheme. This scheme aims to bring gold lying idle in Indian households, into the economy. Imagine the benefit to the Indian economy, if over 20,000 tonnes of gold flows into the economy.

Here’s how the Gold Monetization Scheme works

You don’t walk into any bank. You simply walk into any of the 350 gold testing centers in India and get your gold jewelry tested. You have to get your gold jewelry tested at any of the 350 hallmarking centers in India which have the Bureau of Indian Standards (BIS) certification.

You come to know the approximate value of the purity of gold in your gold jewelry. You change your mind on going for the gold monetization scheme. You simply walk out with your gold.

At least you will know the purity of your gold jewelry.

You are satisfied and want to proceed….

Your gold is weighed and valued at the gold purity testing center. You will have to fill up a KYC form. You will also have to give your consent agreeing to your gold jewelry being melted.

Your gold is then melted and any studs or precious stones are removed (Most of the jewelry in India have precious stones).The precious stones are handed to you. Pure gold is then extracted through a fire assay test which might take 3-4 hours. You come to know how much gold you really have through this process.

If you do not want to continue the process, you can take back your melted gold in the form of gold bars and leave…No questions asked.

If you decide to continue with the gold monetization scheme, you will be given a certificate (deposit certificate), which says you have ‘X’ quantity of gold with ‘Y’ amount of purity. This certificate is the proof of ownership of the gold. 

With this certificate, the bank will open a gold savings account in your name for a year. The bank will pay you interest, 30-60 days after opening this account. The principal and interest will be paid to you in gold.

Gold Monetization Scheme: Here’s how you earn interest

In gold…

You deposit 100 grams of gold with a bank. The bank pays 1% of interest on this deposit. The bank will give you 101 grams of gold after a year.

In cash…

You deposit 100 grams of gold with a bank. The bank pays 1% of interest on the deposit you make with them. The bank pays you cash worth a gram of gold after a year.

Stumbling blocks in Gold Monetization Scheme

Offer higher interest rates:

Currently the Gold Monetization Scheme offers only 1% interest a year, on the gold deposited under this scheme.If the Gold Monetization Scheme offers an interest rate of 1.5%-2.5%, it could be on par with the rate offered by FCNR (foreign currency non-resident deposits).

This is the rate offered to NRI’s who make deposits in India.

Melting of gold:

The main problem with the Gold Monetization Scheme, is customers are not willing to have their family gold jewelry and ornaments melted and converted to gold bars.

This is a genuine problem which the Gold Monetization Scheme has to address. The Gold Monetization Scheme can offer a higher rate of interest, if a customer is willing to have his gold jewelry melted. A customer not willing to have his gold jewelry melted has to settle for a lesser rate of interest.

Incentives to banks

According to rules, banks are forced by the Government to lend to certain sectors called priority sector lending. This is lending in the agricultural sector, housing for the poor, education and student loans and lending to people of low income.

Banks lend the gold bars melted from your gold jewelry to jewelers. These jewelers pay interest on this metal gold loan.

If this lending of metal gold loans to jewelers can be categorized as priority sector lending, banks would be greatly benefited.

Banks would encourage and promote the Gold Monetization Scheme and customers might readily accept it.

Increase the number of testing centers

India currently has over 350 hallmark centers (used for testing the purity of gold).Most of these testing centers are located in highly populated metro’s.

The number of hallmark centers need to be increased across the country. This means gold purity centers. need to be opened all over India.

Tax benefits

The Gold Monetization Scheme is exempt from income tax, capital gains tax and wealth tax.

The Gold Monetization Scheme has the potential to be highly successful and solve the problem of the nation’s high gold import bill.


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