Gold Monetisation Scheme Discontinued from Vajirao & Reddy Institute

GOLD MONETISATION SCHEME DISCONTINUED

• The Indian government has decided to discontinue the Medium-Term and Long-Term deposits under the Gold Monetisation Scheme (GMS), effective from March 26, 2025, due to evolving market conditions and the performance of the scheme.
• Short-term deposits (1-3 years) will continue at the discretion of individual banks, depending on commercial viability.
• The Reserve Bank of India (RBI) will release detailed guidelines regarding this matter.

BACKGROUND OF GOLD MONETIZATION SCHEME

• Launched in November 2015, the Gold Monetisation Scheme was introduced as an improved version of the earlier Gold Deposit Scheme (GDS) and Gold Metal Loan (GML)
• The scheme aimed to mobilize idle gold and bring it into the formal economy to reduce India’s gold imports and subsequently, the current account deficit (CAD).
• GMS had three components:

1. Short-Term Bank Deposit (STBD): 1-3 years
2. Medium-Term Government Deposit (MTGD): 5-7 years
3. Long-Term Government Deposit (LTGD): 12-15 years

Details of the Scheme:

• Under the Gold Monetisation Scheme, gold deposits could be made by individuals, institutions, and government entities.
• These could then earn interest and be redeemed in either cash or gold upon maturity (not in the same form).

IMPACT OF DISCONTINUATION

• Effective from March 26, 2025, no new deposits will be accepted under the Medium-Term Government Deposit (MTGD) and Long-Term Government Deposit (LTGD)
• However, existing deposits will continue until redemption.
• The discontinuation follows a trend where the government has also discontinued the issuance of Sovereign Gold Bonds due to a rise in gold prices.

TYPES OF GOLD DEPOSITS UNDER GMS

• Short-Term Gold Deposit (STGD):
  • Tenure: 1-3 years
  • Purpose: Banks use these deposits for domestic needs and lending.
  • Redemption: Can be in cash or gold.
• Medium-Term Gold Deposit (MTGD):
  • Tenure: 5-7 years
  • Purpose: Utilized by the government and RBI for gold reserves.
  • Redemption: Only in cash.

• Long-Term Gold Deposit (LTGD):
  • Tenure: 7-12 years
  • Purpose: Used for monetary policy and reserves.
  • Redemption: Only in cash.

INTEREST RATES

• The interest rate for short-term deposits is decided by banks based on market conditions and international lease rates.
• For medium and long-term deposits, the interest rate was set by the government in consultation with the RBI:
  • 2.25% for medium-term bonds.
  • 2.5% for long-term bonds.

ADDITIONAL GOLD RELATED SCHEMES

• Sovereign Gold Bond (SGB) Scheme:
  • Discontinued recently, the scheme issued bonds in denominations of 5g, 10g, 50g, and 100g. It was designed to reduce demand for physical gold.

 

• Indian Gold Coin Initiative:
  • Launched alongside GMS and SGB in 2015, this introduced India’s first-ever national gold coin featuring the Ashoka Chakra

This move is part of the government's broader strategy to manage India's gold reserves and to adapt to changing market dynamics, especially amid rising gold prices.   Note: Connect with Vajirao & Reddy Institute to keep yourself updated with latest UPSC Current Affairs in English. Note: We upload Current Affairs Except Sunday.