India’s plans to reduce gold imports keep getting more ambitious. With news last week suggesting that the government is about to unveil a major plan aimed at curbing foreign bullion demand.

Local press report that a so-called “gold monetization” scheme is about to be announced by the national government. Which will allow the country’s finance ministry to access some of the massive stores of gold held by private citizens across the country.

Here’s how the plan will reportedly work. Holders of gold jewelry, coins, and bars will be able to deliver the metal to banks. Where it will be melted down and credited to the account of the holder.

Once the gold is deposited, the account holder will earn interest on the stored bullion. Providing an economic incentive to bring gold out of basements and attics, and essentially lend it to the central government. And it could happen soon, with finance officials telling The Economic Times, “The broad contours of the plan are ready. It would be made public in a week.”

The government would thus gain access to a large supply of in-country gold. Which it reportedly plans to then lend out, in order to reduce the need for imported gold in meeting domestic demand.

The plan is an extension of an earlier-announced scheme to access large amounts of gold held by temples across India. Which promised a similar swap of interest payments for stored gold.

There are no figures on the exact amount of gold held by private Indian citizens. But the numbers are generally recognized as being extremely high — with jewelry particularly having long been used as a store of wealth beyond the banking system.

The gold monetization plan thus has the potential to significantly dent India’s gold import demand — which would be critical for the global bullion market. Watch for detailed announcements on the plan over the coming weeks.

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