What is Gold Monetisation Scheme? How it works?
What is Gold Monetisation Scheme? How it works?

Gold Monetisation Scheme aims to mobilize inactive purchasing power stored in the form of gold with the public. Under the scheme, individuals can submit gold to a Purity Testing Centre and then to a collection centre; both assigned by the government.

From the collection centre, he will get a certificate indicating the value of the gold. When the individual gives this gold certificate to a bank, he can open an deposit account with that bank  equal to the value of the gold he sold.

Bank in return will pay interest to the individual for the deposits. 

The minimum quantity of gold that a customer can bring is proposed to be set at 30 grams.

Submitting gold, purity testing centre, collection centres and refiners

Gold deposit scheme starts with the individual giving his gold to the Purity Testing Centre. This testing centre is designated by the government. After the testing and measuring the quantity of the gold, it will be sent to a gold collection centre with the consent of the individual. The Collection centre gives a certificate to the individual certifying the value of the gold.

From the collection centre gold will be transferred to a refiner. The refinery refines gold, converts into standard bars and keeps it.

Now the individual submits the certificate to a bank and thus opens a gold deposit account with the bank. As a follow up, the bank takes control of the individual’s gold holdings with the refiner and starts its monetization process.

How bank monetizes the gold?

After getting the certificate and giving deposit account to the individual, bank can take custody of the gold kept by the individual with the refiner. It can use several options to monetize gold or to convert it into money. An important one is to sell the gold to a jeweler. Interested jewelers can approach the bank for availing a ‘gold loan’.

When the bank sanctions the gold loan to the jeweler, it will be provided from the gold kept with the refiner. So the depositor’s gold holding with the refiner will be sold physically to the jeweler.

The refiner should do the physical delivery of the gold to the jeweler. Gold loan here includes the physical delivery of the gold.

The Jeweler’s gold purchase will be treated as a loan availed from the bank equivalent to the value of the gold he got physically. For this, the Jeweler has to start a ‘gold loan account’ with the bank.

He pays an interest to the bank like in the case of an ordinary loan.

From the interest paid by the jeweler, the bank can give interest to the individual who has the gold deposit account. Understandably, the interest given to the gold depositor will be lower than the interest paid by the gold loan taker (Jeweler).

According to the present gold deposit scheme, the interest rate charged by the banks from the jeweler should cover the following:

  • Interest rate given to the depositor of gold
  • Fee given to the refiners and Purity Verification Centres
  • A minimum profit margin for the banks

The bank can use the gold for other types of activities like buying of foreign currencies and keeping the gold as part of CRR/SLR requirements.

For the successful implementation , the gold deposit scheme requires coordination between the different agencies involved. The Gold Deposit Scheme hence makes a mandatory MoU between Banks, Purity Testing centres and the Refiners regarding the execution of the programme.

Government has elaborated the various objectives of the gold monetization programme. Following are those objectives:

  • To mobilize the gold held by households and institutions.
  • To facilitate the gems and jewellery sector by making gold available as raw material on loan from the banks.
  • To reduce the reliance on gold imports

The main objective of the scheme is to convert the value stored with the public in the form of gold for productive use. Similarly, it reduces import of gold and thus the foreign exchange payment as the people who needs gold like jewelers can get it domestically.


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