Former Reserve Bank of India Governor Y Venugopal Reddy has said gold is “the ultimate global currency, while the US dollar is an operating currency in the global economy”.
“Gold has characteristics of a currency … Hence, public policy has to recognise this aspect, and regulate as needed,” Reddy had said in a lecture on Sunday. Stating that the gold policy needs more clarity, he said, “We have to recognise that gold is an industry. It has a huge retail market. Millions of citizens are involved in transactions in gold. It has employment potential. The manner in which the industry develops will have an impact on the future of the financial sector. Gold has some characteristics of money and a substitute for financial asset, and hence need for policy clarity.”
He added: “Our policy has to recognise several factors unique to gold but the government should not be judgemental about gold being unproductive or a waste. It is not a ‘sin’ good like tobacco or liquor.”
Reddy said the relative preferences for safe assets influence the relative prices, between gold and the dollar. “US dollar is a safe haven asset, but gold is even more a safe haven asset. Fourth, gold as a form of savings or store of value is in competition with official currency. So, it is a commodity, but central bank is concerned because of its links with financial sector. Finally, the positive approach will promote industry but the import and trade within the country should also be monitored by central bank.”
Reddy has proposed a white paper incorporating a positive comprehensive policy on gold by the government.
In the context of demonetisation, he said, “The demand for gold from black money sources and the demand for gold for jewellery purpose could not be adequately distinguished during the process.”