As such it is not big surprise that Indians prefer to keep their money in Gold - a currency they trust more than what the Government prints. And now, to bring all that gold out, the Government asks people to trust that it will honor the bond that it issues for the Gold - which is something no sane person should do. If there is a run on the Gold, the Government is not above freezing all the bonds and fixing some ridiculous market value for the Gold. If there is a crisis of payments, would the Govt risk offending its foreign loaners who have bribed most of the officials in order to accept their ridiculous loans.. or would they offend their own poor citizens who have in good faith pledged their gold with the government?
This is all the more possible if the Congress comes to power since they have a history of such draconian measures - cancelling the privy purses of the erstwhile rulers though they had clear agreements entitling them to it, declaring emergency and suppressing and arresting all media and , so on. They will be all the more incentivized to do this if they figure out that the Hindu temples (which allegedly are the organizations holding much of the Gold) are the ones that will suffer by rewriting the Gold loan rules.
So basically asking people to lend Gold to the Government when they are holding it as an insurance against the Government in the first place is really silly. What India should do is clean up the governance, stop inflation, write-off all the foreign loans and make real progress is self sufficiency. Then this issue of Gold holding will solve itself out.
Disclaimer: I am not an economist nor do I play one on TV.. So take any ideas in this article at your own discretion..
