Reuters: India Might Buy Gold from Citizens to Ease Rupee Crisis

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MUMBAI (Reuters) - 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.

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.

Any talk of using the country's gold to help meet India's international obligations revives memories of a 1991 balance of payments crisis - when India flew 67 tonnes of gold to Europe as collateral for a loan to avoid a sovereign debt default.

Earlier on Thursday, India's Trade Minister Anand Sharma said the central bank should look into the possibility of monetizing gold holdings.

It was not immediately clear whether Sharma was referring to the 557.7 tonnes of gold the RBI holds in its own reserves, or gold in private hands. He did not give more details of how the proposal would work.

Selling gold reserves may sit badly with Indians, many of whom saw the 1991 sale as a public humiliation. The secret operation was only exposed after a vehicle carrying the first consignment of bullion broke down on its way to the airport from the central bank.


Such a sale would also dent international gold prices which took a hit earlier this year after Cyprus said it was considering selling its gold reserves to shore up its finances.
Click to expand...
Reuters
 
Interesting para there:

"Such a sale would also dent international gold prices which took a hit earlier this year after Cyprus said it was considering selling its gold reserves to shore up its finances."

After seeing the crazy world we live in, won't be surprised if this plan actually goes through.
 
So how does buying gold off citizens and dumping more rupees into the market make the rupee any more valuable?

LMAO, its devaluing for a reason people the citizens don't trust paper money.

Slam
 
I would be highly suspicious if it was me.
More likely as soon as you go to sell it the government will come up with some BS that the seller has obtained their gold illegally and therefore the government has the right to confiscate it.

Tell 'em nothing!
 
House said:
Any talk of using the country's gold to help meet India's international obligations revives memories of a 1991 balance of payments crisis - when India flew 67 tonnes of gold to Europe as collateral for a loan to avoid a sovereign debt default.
Click to expand...


Off topic but India could fly 67 tonnes to Europe in a hurry but it will take the US 7 years to deliver 300 tonnes to Germany
 
"Off topic but India could fly 67 tonnes to Europe in a hurry but it will take the US 7 years to deliver 300 tonnes to Germany"



Simple explanation, India HAS the physical gold, America DOES NOT!
 
Well, I see the following possibilities, issues here:

*if the Indian state starts buying gold from the people in ruppes, if could increase gold's price and shrink the rupee's price...
*what if they would buy gold for dollars? (dollar price goes lower, gold higher!)
*what if people don't want to sell? :P
*finally, the Indian state itself is accumulating gold, just like China, Russia and Brazil - another "brick" of the BRICs


So, bottom line is: India needs gold!

Aren't they also trying to get rid of the dollar?

I see more complex issues behind this...

I think people should be allowed to set their own premiums and the state should pay the people how much they ask for their gold :D
 
The Indian Government has had an import duty on gold at 6%, (then 8%,then yesterday 10%!!), so the locals would want to recoup their 6% so I think the Banks will have to offer at least spot+6% to make the deal work.
Less gold imported = less jewellery manufactured, = less employment, = less export dollars.
Net benefit probably zero.
 
Indians are the world's biggest private hoarders of gold precisely because of what their government is now doing.

Their inherited cultural history (passed down through families, generation to generation, by word of mouth) is stronger than any short term government edict.

They will not relinquish their wealth.
 
#15,


Agree 100% (as in #2)

(I wonder if the Indian Constitution has a Section 51 (xxxi)?




OC
 
So, I've been wondering what sent the Indian Rupee into a slide. There wasn't a clear story or issue I could put my finger onto the cause of this slide, other than the Indian Govt. was limiting Gold imports to address the worsening balance of payments.

But it seems from this zero hedge article, that it was the gold trade itself that caused the current account imbalance. "$53.6 Billion of gold was imported by India last year." For a country that pretty much consumes most of what it makes, that would surely create a trade imbalance.

http://www.zerohedge.com/news/2013-09-01/indias-holy-mary-converting-sacred-temple-gold-dollars

But thumbs up to the Indian people for taking control of their lives. They obviously knew what the Govt. was doing (inflating the currency pool) and started exiting the Rupee and into real money.
 
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