July 2, 2014 Leave a comment
The Reserve Bank of India (RBI) has sounded out large lenders and international bullion banks to strike `location swap’ deals to swap some of the old gold lying in RBI’s Nagpur vault since pre-Independence times -and whose quality is not exactly top grade -with purer gold.The move would ease the supply of gold, even if temporarily, in the local market where duty barriers have given rise to smuggling.This is the first time RBI will carry out such swaps. Better known as loco swaps in the global bullion market, it’s a mechanism whereby gold in one location is ‘swapped’, or exchanged, for gold in another location without physically shipping the yellow metal.
Here’s how the proposed swap scheme between RBI and banks would work: RBI will give delivery of gold from its Nagpur vault to banks in India while taking delivery of gold from banks in London.But the gold that RBI would give to banks in India could be of a slightly inferior quality compared with the ‘London deliverable’ purer gold that it would receive from banks in London. The banks will deposit the gold in London in RBI’s account with Bank of England. Read more of this post