KATHMANDU, Sept. 25 (Xinhua) -- In a strategic move, Nepali government has decided to bolster gold reserve to back up macroeconomic stability and manage the market, after poor management of gold trade fueled balance of payment (BoP) deficit posing challenges to stability for about a year.
According to Saturday's Republica daily, Ministry of Finance (MoF) and Nepal Rastra Bank (NRB), the central bank of the country, have endorsed a new policy on gold, under which they have converged at maintaining separate reserve of monetary gold and 24 caret pure gold.
"We will bolster reserve of monetary gold to back up currency and the additional 24 caret pure gold reserve will be maintained to intervene in the market in case of distortion," said a highly placed source at MoF.
Currently, NRB has over six tons of gold in its reserve. While five tons of the reserve is in Nepal, another 1.2 tons is deposited in Luxemburg against the interest return of 2 percent per annum. The interest is received in gold.
"We have set a target to add three to four tons of yellow metal in the monetary gold reserve every year once we attain BoP surplus, " said the source. What this means is, the policy has adopted a strategy to utilize the surplus BoP to procure gold. So far, the surplus is maintained in foreign currency.
The government decided to adopt the new approach mainly as the rate of return of gold in recent years has remained much higher than currency.
The government has currently banned the import of gold after it failed to re-impose higher import duty, which was necessary to plug the duty differences on gold between Nepal and India. But as that has created short supply, it has sparked illicit inflow of gold from India.
Nepal's gold import in 2009/10 had touched 41.63 billion Nepali rupees (some 570 million U.S. dollars) as substantial duty difference on gold between Nepal and India spurred smuggling from Nepal to India.
Nepali gov't bans gold import
KATHMANDU, Sept. 3 (Xinhua) -- Nepali government has imposed a ban on gold imports to deal with the mounting pressure such imports been exerting on the country's foreign currency reserves.
"We have decided to completely bar the imports from Friday and the decision will remain in effect till further notice," Ganesh Dhakal, joint-secretary at the Ministry of Commerce and Supplies ( MoCS), told Friday's Republica daily. Full story
Special Report: Global Financial Crisis