Monday, September 8, 2025

Why India Is Betting on Gold Instead of US Debt in 2025

India’s forex reserves just hit $694.23 billion

Line chart showing India’s US debt holdings declining from $210 billion in 2021 to $165 billion in 2025, reflecting India’s strategic move away from US Treasuries

India’s foreign exchange reserves have hit a record $694.23 billion in 2025, making it the world’s fourth-largest reserve holder. But the real story isn’t just about the size of reserves  it’s about their composition. The Reserve Bank of India (RBI) is quietly reshaping its strategy: reducing holdings of US Treasury debt and increasing its gold reserves.

This strategic shift raises a big question: Why is India betting on gold instead of US debt? Let’s break it down


India’s Forex Reserves: A Quick Snapshot

India’s forex reserves are made up of four major components:

  • Foreign Currency Assets (FCA) – mostly in US dollars, euros, pounds, yen.

  • Gold reserves – physical gold and gold deposits.

  • Special Drawing Rights (SDRs) from the IMF.

  • Reserve position in the IMF.

👉 In 2025:

  • Gold reserves touched 879.98 tonnes (an all-time high).

  • RBI trimmed exposure to US Treasuries by billions.

This marks a clear pivot in strategy.

Why India Is Cutting US Debt Holdings

1. Rising US Debt Crisis

  • The US national debt has crossed $35 trillion.

  • Treasury bonds, once seen as “risk-free,” now carry concerns about sustainability.

  • For India, holding too much US debt = exposure to Washington’s financial instability.

2. Dollar Weaponization

  • The US has increasingly used the dollar as a weapon (freezing assets, sanctions on Russia, Iran, Venezuela).

  • India fears being vulnerable if geopolitical tensions rise.

  • By diversifying away, RBI ensures financial sovereignty.

3. Low Returns

  • US Treasury yields remain low compared to inflation.

  • Gold, on the other hand, tends to surge in uncertain times, offering a better long-term hedge.

Why Gold Is Becoming India’s Safe Bet

1. Hedge Against Inflation

Gold has always been considered a time-tested store of value. While currencies can depreciate, gold maintains purchasing power across generations.

2. Crisis-Proof Asset

During wars, pandemics, and financial crashes, gold demand shoots up. For India, with its heavy dependence on oil imports and volatile rupee, gold offers stability.

3. De-Dollarization Trend

Globally, BRICS nations and Gulf countries are trading in local currencies, bypassing the US dollar. Gold acts as a neutral asset that isn’t tied to any single country.

4. Symbol of Trust

Gold reserves boost investor confidence in India’s economy. It signals that India is prepared for shocks  from oil price spikes to US monetary tightening.

The Geopolitical Angle

BRICS & Alternative Financial Systems

  • BRICS nations (Brazil, Russia, India, China, South Africa) are pushing for a gold-linked settlement system.

  • Russia and China already stockpile massive gold reserves.

  • India aligning with this trend gives it strategic leverage.

Avoiding US Pressure

  • By cutting US debt, India reduces its financial dependency on Washington.

  • This gives New Delhi more room to maneuver diplomatically, especially on Russia sanctions, Iran oil imports, or defense purchases.

Strategic Autonomy

India’s long-term goal: not to be tied down by any one global power. Gold = neutrality + independence.

What This Means for India’s Future

  1. Stronger Financial Shield

    • Protects rupee against global shocks.

    • Ensures India can withstand sanctions or currency wars.

  2. Boosts Global Image

    • Investors see gold-backed reserves as safer.

    • Enhances India’s credibility as a stable emerging power.

  3. Balance Is Still Key

    • Gold doesn’t generate interest like bonds.

    • RBI must balance between liquidity (USD) and stability (gold).


FAQs

1. Why is India buying more gold instead of US debt?

Because gold is a safe-haven asset that protects against inflation, sanctions, and dollar volatility. US debt is riskier due to rising US deficits.

2. How much gold does India hold in 2025?

As of 2025, India’s gold reserves stand at around 879.98 tonnes, the highest in its history.

3. Is India the only country reducing US debt holdings?

No. China, Russia, and several BRICS nations have also reduced their US Treasury exposure, signaling a global de-dollarization trend.

4. Does gold give better returns than US bonds?

Gold doesn’t yield interest, but it retains value during crises. US bonds pay interest but carry risks linked to US fiscal instability.

5. How does this impact ordinary Indians?

More gold reserves = stronger rupee, lower risk of inflation, and protection during global financial shocks.

Conclusion

India’s shift from US Treasuries to gold is not just about economics  it’s about geopolitical strategy and financial independence. By strengthening its gold reserves, New Delhi is sending a clear message: India won’t put all its eggs in Washington’s basket.

As the world moves toward a multipolar order, India’s golden bet could be its strongest shield against global uncertainty.

By Indresh Sharma -
Labels:

No comments:

Post a Comment

Subscribe to: Post Comments (Atom)