Physical Gold Shortage Alert: “Gold For Fiat Rupee” Is Back With A Vengeance

The gold for fiat rupee scheme had high hopes of Indians turning in 25,000 tonnes of gold. The actual amount turned in to-date is a joke, but there is a new problem that’s not only not contained, but rather, it’s reaching all-out panic mode…

The “Turn-in your gold for fiat Indian rupees plus a tiny bit of fiat interest” program started in 2015

This program was started one year before PM Modi came out and demonetized the 500 and 1000 Indian Rupee notes on November 9, 2016 with no warning, no preparation, and no plan. Now, after Indians have literally died waiting in lines to exchange cash, and the society has utterly collapsed on itself, they think they can revive gold-for-a-joke scheme willingly?

From Jayant Bhandari:

On November 8, 2016, Indian Prime Minister Narendra Modi dropped a bombshell. In a televised address at 8:00 pm, he declared that after midnight—four hours later—banknotes with face values of INR500 (US$7.50) and INR1,000 (US$15) would no longer be legal tender.

These bills comprised 86% of the monetary value of currency in circulation, so to say that panic ensued would be an understatement. The market stayed open all night as people rushed to buy gold, Rolex watches, and anything else they could get their hands on to use up their cash.

During the next two weeks, gold traded for as much as US$3,000 per ounce, a premium of almost 100% to the international price. Foreign currencies traded at similar premiums.

Soon, Indian tax authorities descended on the gold market, confiscating security camera recordings to identify any transaction that might have bypassed taxation. They were raiding people’s houses with abandon.

Chaos, Death, And Tragedy

India is already well known as a society where it is virtually impossible to find a public servant who won’t ask for a bribe, but now the number of bribes skyrocketed. Fear gripped the population—but most still didn’t realize that they were witnessing the emergence of a police state.

The government provided a one-time option to convert $30 worth of cash into the still legal banknotes, which were in extremely short supply. People’s fingers were to be marked with indelible ink to ensure they couldn’t repeat conversion. Any excess cash would have to be deposited into a bank account, which for all intents and purposes had the same effect as freezing people’s assets.

You’d see massive lines outside all the bank branches. The date by which the cash had to be deposited kept changing. Regulations that materially affected the handling of currency often changed more than once per day, until the last day of the demonetization exercise. The chaos was unprecedented.

To fully comprehend the level of turmoil, you need to know that 95% of Indian consumer transactions happen in cash.

The net effect of all these events was to rapidly stall the economy and to send it into a state of shock. Scores of disabled, sick, and old people—who had no choice but to personally take care of the currency exchange—died while standing in line at a bank all day. Many soon found themselves cash-strapped and with no means to buy staple items, including food.

Street markets started looking like ghost towns as even those with cash avoided non-urgent purchases. Next, the sudden drop in demand caused small businesses to fail. Even export houses, like diamond polishers, had to lay off their employees because they had no cash to pay salaries. The economy spiraled downhill.

Even today, vegetables sell for half as much as they normally do. This would be considered a good thing had it happened as a result of excess supply, but the reason for the price drop is the destruction of demand—resulting from lack of funds among the poor people who lost their jobs. And don’t expect any reports on this in the Indian media, which must toe Modi’s party line.

Does anybody really think Indians, or anybody for that matter (US included with what happened in 1933) is going to turn in their gold because a corrupt, evil, dishonest and non-public serving government says to do so?

Well, apparently Rajesh Bhayani of Business Standard is reporting that the scheme back, and the creative solutions are being drawn up:

Efforts on to revive Gold Monetisation Scheme

All-out efforts are being made to revive the Gold Monetisation scheme, which failed to take off since its launch two years ago.

The aim of this scheme was to mobilise “idle gold” with households, estimated by the World Gold Council at 25,000 tonnes or almost half the value of this country’s gross domestic product. However, the scheme has not even attracted 10 tonnes since the launch in November 2015.

Suggestions on how to revive it are being discussed by a panel formed by the Niti Aayog. These include involving jewellers as collection centres, addressing of issues that banks have been facing and using domestically available gold for giving metal loans to jewellers for domestic sales.

Even this has mostly been from temples, not homes.


James Jose observes: “The GMS deposit interest rate is over two per cent, which is costlier if the same gold is to be lent back to jewellers. From international sources, such loans are available at 1.5 per cent. To tackle this, metal loans from overseas could be made permissible to only exporters, which might motivate banks to push GMS.”

Another suggestion he has given to the ministry of finance is that, “banks would be motivated to push GMS if they are allowed to lend gold to domestic jewellers for more than one year against collateral. And, metal loans shall be denominated in gold weight and repaid in gold weight.”

So to recap – The government and the banks wants Indians to turn in their gold. They are willing to pay tiny interest rate in fiat, even though the government could demonetize fiat at any moment just like they did that November day in 2016. 

Banks want to “loan” (i.e. “lease”) the gold that is deposited on terms of at least one year. 

Hmmm…Nobody wants gold, but efforts need to be made to use it to supply the demand? Here’s the supposed “world authority” on gold pumping the whole thing:

 This reeks of desperation. What does that say about the true supply of available gold out there?

Why does the cartel need 25,000 Tonnes of gold all the sudden?

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