From UPSC perspective, the following things are important :
Prelims level : IIBX
Mains level : Gold exchange
Prime Minister has launched India’s first International Bullion Exchange (IIBX) at the Gujarat International Finance Tec-City (GIFT City) near Gandhinagar.
What is Bullion?
- Bullion refers to physical gold and silver of high purity that is often kept in the form of bars, ingots, or coins.
- It can sometimes be considered legal tender and is often held as reserves by central banks or held by institutional investors.
When was the IIBX announced?
- During her 2020 budget speech, Finance Minister announced the setting up of India International Bullion Exchange (IIBX) at International Financial Services Center (IFSC) at GIFT City in Gandhinagar.
- The International Financial Services Centres Authority (Bullion Exchange) Regulations, 2020, was notified in December 2020 for trading of precious metals, including gold and silver.
- These regulations also cover bullion exchange, clearing corporation, depository and vaults.
What is the IIBX?
- India for the first time had liberalised gold imports through nominated banks and agencies in the 1990s.
- Now, the eligible qualified jewellers in India have been allowed to directly import gold through IIBX.
- For this, jewellers will have to become a trading partner or a client of an existing trading member.
- In addition, the exchange has set up necessary infrastructure to store physical gold and silver.
- The exchange will sell physical gold and silver and aims to be set up on the lines of the Shanghai Gold Exchange and Borsa Istanbul in order to make India a key regional hub for bullion flows.
How will it work?
- The thought process behind setting this up is to enable the trading of commodities on an exchange.
- Since this is international exchange, trading can take place in US dollars as well.
- India has positioned itself as one of the biggest trading hubs in Asia.
- Because of the competitive pricing on IIBX, international players will be happy to use our vaulting services.
- Moreover, with this being a free trade zone, no duty will be paid.
What was the practice up until now?
- Currently, gold in India is imported on a consignment model into different cities by nominated banks and agencies approved by the RBI and then supplied to traders/jewellers.
- The banks and other agencies get a fee from the gold exporter for handling, storage, etc, and also add a premium to the gold while transacting with domestic buyers.
- The buyer passes this charge on to the value chain until it reaches the end customer.
What change did IIBX bring?
- With the IIBX becoming operational today, qualified domestic buyers can, through a branch in Gift City, purchase the bars and coins.
- This purchase can be done from an international supplier who is a member of the IIBX.
What is the advantage of an exchange?
- Through the dis-intermediation by facilitating transactions through an anonymously traded exchange platform, bullion is made available across special economic zones (SEZs) at International Financial Services Centres Authority (IFSCA)-approved vaults.
- This means the growth of IIBX is not just limited to GIFT City but across jewellery manufacturing hubs nationwide.
- The qualified jeweller allowed to import gold through IIBX, or a jeweller who is a client of an IIBX member, can view the available stock and place the order.
- This shall nudge jewellers towards just-in-time inventory management.
- It will also result in greater transparency in pricing, and order sequencing, thereby removing any room for unfair preference by supplier, importing or logistics agency.
Which jewellers have come on board?
- So far, 64 big jewellers have come onboard and more applications are in the pipelines.
- Some of the big names include Malabar Gold Pvt Ltd, Titan Company Ltd, Bangalore Refinery Pvt Ltd, RBZ Jewellers Pvt Ltd, Zaveri and Company Pvt Ltd.
What are the new RBI guidelines for importing gold?
- Banks may now allow qualified Jewellers to remit advance payments for 11 days for import of gold through IIBX in compliance to the extant Foreign Trade Policy and regulations issued under IFSC Act.
- According to the RBI, all payments by qualified jewellers for imports of gold through IIBX shall be made through the exchange mechanism as approved by IFSCA.
Who can enrol on the exchange?
- Non-Resident Individual / Proprietorship Firm
- Registered Partnership Firm
- Private Limited Company
- Public Limited Company
- Qualified Jewellers
- Branches of IBU at GIFT City
- Foreign Bullion Suppliers who follow OECD guideline
- In order to become a qualified jeweller, entities require a minimum net worth of Rs 25 crore.
- And 90 per cent of the average annual turnover in the last three financial years through deals in goods categorised as precious metals.
- NRIs and institutes will also be eligible to participate in the exchange after registering with the International Financial Services Centre Association (IFSCA).
- Jewellers will be able to transact on IIBX only as trading members or as clients of a trading member.
- If one wants to become a trader, a qualified jeweller will have to establish a branch or a subsidiary in IFSC (international financial services centre) and apply to the IFSCA.
What products does IIBX offer?
- IIBX offers a diversified portfolio of products and technology services at a cost which is far more competitive than the Indian exchanges as well as other global exchanges in Hong Kong Singapore, Dubai, London and New York.
- Gold 1 kg 995 purity and gold 100 gm 999 purity with a T+0 settlement (100% upfront margin) are expected to trade at IIBX initially.
- All contracts will be listed, traded and settled in US Dollar
- The exchange will have three vaults – one operated by Sequel Global (ready and approved), the second one to be operated by Brinks India is ready and awaiting final approval and the third is under construction.
- Once the gold is imported by the authorised entities it will be deposited at one of the vaults which will issue bullion depository receipts.
- These receipts will then be traded in dollars on the exchange.
Significance of IIBX
- The IIBX shall be the “Gateway for Bullion Imports into India”, wherein all the bullion imports for domestic consumption shall be channelized through the exchange.
- The exchange ecosystem is expected to bring all the market participants to a common transparent platform for bullion trading.
- It would provide efficient price discovery, assurance in the quality of gold, and enable greater integration with other segments of financial markets.