KARACHI: Dr. Inayat Hussain, Deputy Governor of the State Bank of Pakistan (SBP) dispelled rumors of pledged gold reserves in a podcast hosted by Chief Spokesperson Abid Qamar.
Pakistan currently holds $3.82 billion worth of gold.
“Currently, we are not in a debilitating crisis, so we do not need to pledge these gold reserves. We must not panic. I advise the Pakistanis to reject the fake news reports drawing a doomsday scenario for Pakistan,” said Hussain.
The podcast was joined by Acting Governor Murtuza Syed and Deputy Governor Sima Kamil.
Are Pakistan’s gold reserves safe?
The gold reserves have not been pledged, despite rumors. Hussain explained that the gold reserves are safe considering the current FX reserves.
Pakistan’s current reserves stand at $9.3 billion. Hussain says they are sufficient enough to carry Pakistan through the next few months despite not being ideal. The FX reserves are fully usable for all purposes. It is important to note that these reserves are in addition to the gold held and encumbered assets.
“We would like to increase it to equalize three months of Pakistan’s import bill”, the reserves are not too low and should not be a cause of concern for the nation,” says Hussain.
The World Gold Council ranks Pakistan number 43rd in its Gold holding in Metric tonnes.
Why do central banks hold gold?
Gold reserves consist of physical gold bullion held by a country’s central bank, in the form of gold ingots. It is a part of the nation’s total wealth. For security purposes, many nations choose to store their gold reserves outside their own banking systems.
These gold reserves are used as an insurance policy against an economic crash. In the past, gold would be held to issue currency against it. Despite the world is moving onto currencies, currencies no longer have physical assets to back them; gold reserves have not lost their utility.
Gold reserves are held as a contingency in case the currency becomes worthless or near worthless. It is used to repay debts and issue money.
Another reason to hold onto gold is to diversify reserves. Holding onto gold carries no credit or counterparty risks. As gold is finite in physical supply, compared to the currency which can be printed and increased; it acts as a natural hedge against inflation because its supply can’t easily be added to.