Indian Rupee Crisis Now Even More Comical
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The folks at Reuters are reporting that the Indian government
continues to address the symptoms rather than the causes of its currency
troubles as they are now considering buying gold from the public in order to
have that same gold sold back to the public so as to reduce gold imports, lower
its trade deficit, and pull the rupee out of its downward spiral.
India might buy gold from citizens to ease rupee
crisis
India is considering a
radical plan to direct commercial banks to buy gold from ordinary citizens
and divert it to precious metal refiners in an attempt to curb imports and
take some heat off the plunging currency.
A pilot project will be
launched soon, a source familiar with the Reserve Bank of India (RBI) plans
told Reuters. India has the world’s third-largest current account deficit,
which is approaching nearly $90 billion, driven in a large part by appetite
for gold imports in the world’s biggest consumer of the metal.
With 31,000 tonnes of commercially available gold in the country –
worth $1.4 trillion at current prices – diverting even a fraction of that to
refiners would sate domestic demand for the metal. India imported 860 tonnes of gold in 2012.
“We will start a pilot
project among some banks where we will allow them to buy back gold from
individual households,” the source, an official familiar with the central
bank’s gold policymaking, said. “This will start soon, we have discussed (it)
with banks.”
The RBI will ask the
banks to buy back jewelry, bars and coins for rupees. Lenders will have to
offer better rates than pawn shops and jewelers to lure sellers.
This comes after the
rupee reached a new record low against the dollar earlier today (as the gold
price in rupee terms reached a new record high) and the central bank announced it will sell U.S. dollars directly to oil
companies (in exchange for depreciating rupees) in order to ensure that those
companies can continue to pay for imported oil on world markets.
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Hmm, the government will pay more than pawn shops and dealers...the dealers will respond by paying more. The government will respond by paying still more...repeat ad infinitum. Could the law of unintended consequences ignite the beginning of the end for fiat?