BLACK FRIDAY/CYBER WEEKEND/MONDAY GOLD AND SILVER SALE
India Opens New Fronts in its War on Cash and Gold
India’s Battle Plan
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On November 8, 2016, we reported that the India Government had demonetized 500 and 1000 Rupee notes. The order demonetizing the notes was effective within 24 hours per the Prime Minister’s televised addressed. The 500 and 1000 Rupee notes would no longer be legal tender, but could be exchanged for new notes or deposited at banks until the end of the year. The move was announced as a way of combating corruption.
On November 15, 2016, we published “India’s Currency Ban Insanity Update” In that report, we noted:
- 86% of India’s cash had been demonetized;
- long lines to exchange or deposit cash;
- shortages of new notes; and
- soaring gold sales and premiums
A lot has changed since then, so we are updating what we have leaned about the situation in India. Here is what has changed:
- India ended the Rupee exchange program at banks across the nation six weeks early – except at Royal Bank of India (Reuters refers to the 500 and 1000 Rupee notes as “large notes)”;
- only 60% of all outstanding currency has been exchanged or deposited;
- death and suicides reported due to standing in line and inability to access funds;
- The Rupee craters;
- rumors circulated about a limit on domestic Indian gold ownership;
- rumor officially denied
- rumors circulated about an Indian gold import ban;
- report of planned government forced participation in India’s gold monetization scheme for those that purchased gold since the rupee demonetization announcement;
- creative ways of exchanging cash emerged using servants and other paid people; and
- gold sales crater as consumers lack cash to buy gold.
Gold presents India with a bigger challenge. There are an estimated 18 – 22K tons of gold in Indian private households. Indians have a long affinity for gold and view it as a store of value.
While the government can declare Rupees worthless, they can’t do the same with gold. The Indian government hates that its citizens love gold and would love to wrest it from them. To date the gold monetization program has been a failure.
India has taxed gold, limited its imports, but to date has not banned ownership or confiscated it. That may be a bridge to far.
Will India’s demonetization scheme be successful in battling corruption or was it just a way of the government to grab some tax revenue/penalties and to recapitalizing the banks in an immediate fashion?
Further Reading
September Indian Gold Imports (with War on Gold analysis)
India and Gold (news archives)
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