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.
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?
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