Countries Weary of Holding Gold with Bank of England

Bank of England. (File Photo: IANS)

A judgement by the UK High Court on denying access to Venezuela to its gold held in the Bank of England may have implications for safe keeping of other countries sovereign assets, according to Kartik Mittal, Partner, Zaiwalla & Co.

During the Covid-19 pandemic, the Central Bank of Venezuela had negotiated with the UNDP to ensure funds raised by the sale of substantial proportion of the Venezuelan gold, currently held in the Bank of England, are directly transferred to the UNDP and are used in the fight against the virus.

“However, following the judgement made this week in the UK High Court with British Judge Nigel Teare denying Central Bank of Venezuela access to Gold in Bank Vault as Britain’s government formally recognised Mr. Guaido as the constitutional interim President of Venezuela and not Mr. Maduro, the Central Bank of Venezuela has been denied access to its resources during an international crisis which has put lives at risk,” Mittal said.

The Bank of England is the second largest keeper of gold in the World (and is second only to the New York Federal Reserve). Interestingly the Reserve Bank of India in Mumbai holds over half of India’s gold reserves and the rest is jointly held by the Bank of England and the Bank for International Settlements in Basel, Switzerland.

“The outcome of this case is, therefore, not only of importance to Venezuela, whose gold is the subject matter of this dispute but other countries as well who hold their gold/foreign reserves with the Bank of England and/or in the United Kingdom. It raises a serious question: whether their sovereign assets are safe!” Mittal said.

Bank of England

While there is a genuine risk that the people of Venezuela will suffer, it is important to note that the case and the economic situation in Venezuela have much broader implications internationally, including for India, he added.

Venezuela has been trying to raise funds to support their local covid-19 relief measures owing to the economy being under duress because of the unlawful sanction regimes.

Mittal said this has in fact, impacted the diplomatic and economic relationship with India as well, as India had been importing low-priced Venezuelan crude oil before the sanctions froze the trade.

“A significant number of Indian pharmaceutical companies, which export critical drugs to Venezuela, had also not been able to receive payments as forex remittances from Venezuela were frozen because of the sanctions,” he added.

“If the UK courts were to recognise the Maduro government as legitimate, it will go a long way in thawing the current economic and political blockades and once again open up the markets. With a considerable amount of Venezuelan credit due, India will stand to benefit immensely from a positive outcome,” Mittal added.

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