Gold is one of the most prized metals worldwide, having been in existence for almost 12,000 years. The rate of gold in a country relates to the strength of that nation’s currency. The Reserve Bank of India has the currency and gold revaluation account (CGRA) and the Contingency Fund as its two main components on its balance sheet. Over the past 20 years, the capital of RBI has shown a significant evolution.
At the end of June 2018, RBI had around $405.7 billion unrealized reserves in its currency and gold revaluation account, accounting for more than 73% of RBI's capital. This reserve was valued at Rs. 27,791 billion at the end of June 2018, a much higher value than its original acquisition. RBI revaluates its foreign assets every week. The gain or loss from the revaluation appears in the balance sheet not as an income but as a reserve.
The currency and gold revaluation account contains all of the unrealized losses and gains obtained from the foreign currency assets and gold by the changes in the gold prices and movement of the exchange rates.
In 2019, the Reserve Bank of India announced that there would be no distribution of Rs. 730,000 crore of unrealized reserves from the currency and gold revaluation account to the government, as recommended by the Bimal Jalan Committee. This policy of keeping the currency and gold revaluation account frozen and retained was proposed by the committee and will be applicable for the coming five years. However, the committee agreed to transfer a sum of Rs. 1,76,051 crore to the government for the year 2018-19.
RBI has recently also decided to make a transition to an April-March accounting year from the financial year 2022. Hence, the committee transferred Rs. 99,122 crore surplus of nine months ending on March 2021 to the government by maintaining a contingency risk buffer of 5.5%.
RBI Reserves Transferred to the Government in the Past Years
Rs. 265,110 crore
Rs. 50,000 crore + Interim Transfer of 10,000 crore
2018- 19 period
Rs. 1,76,051 crore
June 2020-March 2021
Rs. 99,122 crore
Factors affecting the currency and gold revaluation account:
- Market prices
- RBI’s discharge of its public policy objectives
Thus, the majority of the surplus reserves will be used to compensate for the risks of market movements in currency and gold prices, interest rate risks, and risks associated with USD-INR movements.
The currency and gold revaluation account is unrealized surplus capital from the gain and loss of foreign assets. It is used for risk mitigation involved in market movements of currency and interest rate risks. RBI recently decided not to distribute the capital to the government and instead chose to keep most of it as a reserve.
FAQs on Currency and Gold Revaluation Account
Q.1. What is a currency and gold revaluation account?
The currency and gold revaluation account is the unrealized capital received from the gain or loss of foreign assets in the form of gold and currency.
Q.2. Who recommended the RBI not to transfer the amount from the currency and gold revaluation account to the government? Was the recommendation followed?
The Bimal Jalan committee recommended the Central Board of the Reserve Bank of India not transfer Rs. 730,000 crore amount from the currency and gold revaluation account. RBI decided to follow the recommendation, and the amount was not transferred. However, it agreed to transfer only a sum of Rs. 1,76,051 crore to the government for the year 2018-19.
Q.3. How is the currency and gold revaluation account revenue used?
The capital of the currency and gold revaluation account is used as a reserve to mitigate the risks associated with gold and currency movement and interest rate risks.
Q.4. What factors affect the currency and gold revaluation account?
The market prices and RBI's discharge of its public policy are the factors that affect the currency and gold revaluation account.