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Exclusive: India might buy gold from citizens to ease rupee crisis - Yahoo! Finance

It will initially be limited to those with big gold portfolios. Several Indian banks already offer a gold deposit scheme that pays out interest. "I don't think it is going to work. It has to be more structured, like a gold bond," said Samiran Chakraborty, chief economist at Standard Chartered Bank. That's exactly what India's Trade Minister Anand Sharma suggested on Thursday. He said the central bank should look into the possibility of monetizing gold holdings, and issuing bonds for privately-held gold was one way to do it. India's central bank holds 557.7 tonnes of gold in its own reserves. However, any talk of using the central bank's gold to help meet India's international obligations revives memories of a 1991 balance of payments crisis - when India flew 67 tonnes of gold to Europe as collateral for a loan to avoid a sovereign debt default. "I have not said there should be any mortgaging of the gold, or auction of the gold, that is incorrect. I have just said the RBI should look into ... how they can benefit the people, particularly with regard to the bonds or the monetization," Sharma said in response to a question in parliament. Earlier this week in comments reported in the national media, Sharma said that in a country with 31,000 tonnes of declared gold "even if 500 tonnes is monetized at today's value it takes care of your CAD", or current account deficit. Selling the country's gold reserves may sit badly with Indians, many of whom saw the 1991 sale as a public humiliation. The secret operation was only exposed after a vehicle carrying the first consignment of bullion broke down on its way to the airport from the central bank. "It (pledging gold) will be a desperate measure, and it will send a very wrong signal to the entire country because all the time we've maintained that things are under control even though things are adverse," said Madan Sabnavis, chief economist at CARE Ratings. Such a sale would also dent international gold prices which took a hit earlier this year after Cyprus said it was considering selling its gold reserves to shore up its finances. Some economists said India should improve the current gold deposit scheme, which allows individuals to effectively hold gold in a bank account in exchange for a certificate. They receive interest payments and can redeem the same weight in gold when the certificate matures. Analysts say this scheme would also allow the government to funnel gold to the refinery industry and reduce import demand. However, Indians are currently put off by the 500 gram minimum requirement. Offering higher interest rates could also draw out gold stashed in the country's temples. South India's Tirupati temple, considered one of the world's richest, is estimated to hold gold worth up to $80 billion. Gold is considered auspicious as a gift or offering at religious festivals in India and forms an essential part of a bride's dowry. "The biggest avenue the government has to monetize gold is the gold deposit scheme," said Shekhar Bhandari, executive vice president of treasury at Kotak Mahindra Bank. "It has the maximum potential and (encourages) recurring behavior." India has taken multiple steps this year to curb imports of gold, its second-biggest import after oil, including raising duty three times to 10 percent. The rupee, the worst-performing emerging market currency in Asia this year, rebounded from a record low on Thursday after the RBI said it will provide dollars directly to state oil companies to shore up the currency. In comments published by The Hindu newspaper last week, David Gornall, chairman of the London Bullion Market Association, said India could raise $23 billion by swapping gold for a payable currency for a period of its choice, while remaining the long-term holder of the gold. (Additional reporting by Siddesh Mayenkar in Mumbai, Rajesh Kumar Singh, Frank Jack Daniel in New Delhi: Writing by A. Ananthalakshmi: Editing by Amran Abocar and Neil Fullick) @yahoofinance on Twitter, become a fan on Facebook Related Content Chart Your most recently viewed tickers will automatically show up here if you type a ticker in the "Enter symbol/company" at the bottom of this module. You need to enable your browser cookies to view your most recent quotes. Search for share prices Copyright/IP Policy Quotes are real-time for NASDAQ, NYSE, and NYSEAmex when available. See also delay times for other exchanges . Quotes and other information supplied by independent providers identified on the Yahoo! Finance partner page . Quotes are updated automatically, but will be turned off after 25 minutes of inactivity. Quotes are delayed at least 15 minutes. All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein.

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