Banks Allowed To Consider Gold, Forex Limits As One

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Mumbai, October 11: : At long last, gold is to be treated akin to foreign exchange (forex) currency and not just as an idle precious metal or commodity to be stuffed up in vaults. Globally, gold is considered as forex and is part of bullion banks’ forex dealings.

In a far reaching move, the Reserve Bank of India (RBI) has decided to allow bullion banks to have one single open position limit for both gold and forex, albeit after banks get the board approval in this regard. Till recently, the RBI treated bullion banks’ limits in both gold and forex separately.

As per the RBI’s earlier circular dated March 4, 1998, these banks were advised to lay down, with the approval of their boards, prudential limits on taking open position in gold and also to obtain the specific approval of the RBI for such limits. The latest circular, thus, removes this requirement and considers the open position in both gold and foreign exchange as one, giving clear indication that gold will now be treated similar to foreign currencies.

The latest move will have wider implications on the use and treatment of the precious yellow metal in the country. The move is expected to see the emergence of trading in gold, both physical and gold certificates (paper gold as it is commonly known), not permitted currently. And gold would then be traded as forex is traded.