What is India’s Gold Monetization Scheme?

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Numerous monetary efforts have been launched over the past few decades. In India, the Gold Monetization Scheme, or GMS, has proven to be very interesting. It is a different way of making the precious metal more useful.

Exploring the Gold Monetization Scheme

There is a very good reason why the Indian government has been exploring this particular scheme since 2015. Unlike other countries, Indian households have significant gold reserves. It is estimated as much as 25,000 tonnes have been stockpiled over the years. Considering how India has seen its fair share of financial problems, stockpiling gold is a viable option. 

Introduced a few years ago, the Gold Monetization Scheme was launched by the United Bank of India. It allows for deposits to be made in gold, and earn interest on their deposits in the process. In theory, it is akin to a savings account, but without having to deal with India’s own – and somewhat unstable – domestic currency. 

Every deposit of gold is locked in either a medium term or long term government deposit. A short-term contract may be available at certain institutions. Medium term deposits are “locked” for 5 to 7 years. Their long term counterpart is inaccessible for 12 to 15 years. Given the long-term value appreciation for gold, it is an interesting option from a speculative point of view.

The Gold Monetization Scheme also serves a secondary purpose. India relies on the import of gold to fulfill domestic needs. That is not a viable long-term strategy in the opinion of the bank. By mobilizing gold reserves from households, the reliance on bullion imports can be reduced over time. 

Interest Rates and Deposit Requirements

Introducing a new scheme is one thing, but ensuring households explore the option is a different matter. To make this attractive, the Gold Monetization Scheme offers annual returns between 2.25% and 2.5%. This is on top of the natural value appreciation gold tends to go through. Interest is calculated in Indian Rupees based on the current price of bullion.

For those households interested in exploring this option, there is a minimum deposit threshold. According to an official document, users must deposit at least 30 grams of raw bullion. This can be done in bars, coins, jewelry, but not stones or other metals. Under the Gold Monetization Scheme, there is no maximum deposit limit.

Opening a deposit account under this scheme is not necessarily complex. It adheres to the same KYC verification as setting up a normal bank account. While not specifically clarified, it is possible that existing bank clients need to verify their identity a second time while going through this process.

Last but not least, there is a tax benefit when exploring the Gold Monetization Scheme. There are no capital gains taxes to be paid on any profit made through this scheme. All capital gains are also fully exempt from income tax and wealth tax. On paper, this concept only offers benefits, assuming one trusts the bank enough. 

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