Why is the RBI Diversifying its Reserves? India’s Shift From US Treasuries to Gold Explained

India’s central bank, the Reserve Bank of India (RBI), has been gradually cutting back on its investments in US Treasury securities while boosting its gold reserves. This shift began even before President Donald Trump implemented heavy tariffs on Indian exports, indicating that India is strategically diversifying its foreign exchange reserves away from the US dollar. 

Reduction in US Treasury Holdings

Latest figures from the US Treasury Department show that India’s holdings of US Treasuries declined from US$235.3 billion in May 2025 to US$227.4 billion in June 2025. This is also down from around US$242 billion a year ago. While global foreign holdings of US Treasuries hit record highs in June, India’s share is shrinking, reflecting a deliberate RBI policy change.

Increasing Gold Reserves

At the same time, the RBI has been steadily increasing its gold reserves. Gold holdings grew from 841.5 metric tons a year ago to approximately 880 metric tons as of July 2025. Furthermore, India is repatriating a significant portion of its gold reserves, with domestic holdings rising from 292 tons in September 2020 to 512 tons currently. This move aims to reduce the risks associated with storing gold abroad amid global uncertainties.

Why Diversify?

India’s Finance Minister recently described the RBI’s strategy as a “very considered decision” to diversify its reserves, which currently total around US$694 billion, making India’s reserve holdings the fourth largest globally. The reasons behind this shift are:

• Geopolitical tensions have made central banks more cautious. For example, after the US froze Russia’s foreign reserves in 2022 following the Ukraine invasion, countries like India are wary of holding excessive amounts in US dollars due to potential risks of sanctions or asset freezes.
• Concerns about the US dollar’s reliability as a safe haven are increasing. In response to global uncertainties, many central banks are boosting their gold reserves, which are seen as a more stable and secure asset.
• US-India relations worsened after August 2025 when the US imposed steep tariffs on Indian exports, partly as a penalty for India’s purchase of Russian oil. This development has encouraged India to lessen its financial dependence on the US.

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Conclusion

India’s measured reduction in US Treasury investments, combined with a rise in gold reserves, reflects the RBI’s strategic goal to diversify foreign exchange reserves and reduce dependence on the US dollar. By repatriating gold and expanding its gold holdings, India is aiming to safeguard its reserves against geopolitical risks and enhance financial stability amid an uncertain global landscape.

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