Last year, the Indian government launched various gold schemes to get temples and individuals to turn over their gold to the government and/ or banking system. The stated reason is to reduce gold imports and narrow the trade deficit.
The real reason – at least for us cynics – is probably more along the lines of politicians wanting to reduce competition for its fiat currency. In addition, it means more control over assets.
One of the gold schemes – the Gold Monetization Scheme – allows Indians, including Indian temples, to deposit their gold holdings into the banking system. The temple or depositor of the gold is then paid an interest payment based on the gold deposits. You could say that it is like a gold bond.
It was recently reported by The Economic Times of India that the world’s largest Hindu temple (and wealthiest) could move its massive 7.5 metric tons of gold holdings to the gold scheme.
The Tirumala Tirupati Devasthanam (TTD) manages the temple’s gold and has essentially negotiated certain terms with the government regarding the Gold Monetization Scheme.
One change that the TTD requested was that the principal amount deposited be returned in gold upon maturity, instead of cash. The TTD also requested that the interest be calculated based on the gold at the time of return, as opposed to the time of deposit.
The TTD has said that it already moved 1.3 metric tons of gold under the gold scheme and that it is considering the full 7.5 metric tons based on a tweaking of the rules.
It is rather hard to believe that a temple would turn over all of its gold to the government for management. Up until now, it seemed the response to the gold schemes was rather tepid.
Trusting the Overseers
While the TTD negotiates over interest rates and how it will be paid, maybe it should consider the bigger picture, and whether it will even be paid what it is promised.
How many times will people be fooled by political programs that do not deliver what is actually promised?
Do they think the Indian government is just in a good and generous mood in wanting to make additional payments for those holding gold?
The politicians aren’t stupid, regardless of the origin of country. They may, however, think that you are stupid.
One of the primary reasons to own gold, especially physical gold, is a lack of trust in politicians and central bankers. All fiat currencies are devalued over time. Some are worse than others. India tends to be worse, as it is still essentially a third-world country.
If this temple hands over all of its 7.5 metric tons of gold to the government, do the people making this decision really think they are getting a benefit out of the system? It is almost hard to believe they could be this naïve, especially given how popular gold is in India.
All it takes is one economic crisis as an excuse on why the government can’t make good on all of its promises. Maybe it won’t even take an economic crisis. Some excuse can always be cooked up. They just have to say it is for the good of the people, or some such socialist argument.
How many years (or months) will it be before the government reneges on its promises here?
It will go something like this:
“Oops, we sold or lent out all of the gold that we were holding. After all, we couldn’t just let it sit there. You have to make your capital work for you. The gold was in high demand and we wanted to curb imports. We will try to get back some of the gold to pay back our creditors. But we are in a tough economic situation right now. We can’t spend money to buy back gold because that would mean that we could not help those in need of food, medicine, and other basic needs.”
The Indian central bank could create money out of thin air to buy back the gold, but that would just drive up the gold price in terms of the rupee that much more.
The gold schemes are just that – schemes. They are designed to get people to turn over their physical gold, which transfers power from the people to the government.
Gold is the one asset that Indians really understand. It is the one asset that gives the people some form of power – or at least check – against their government. Let’s hope most of the Indian people do not follow in the footsteps of this temple and consider a foolish move of turning over their number one financial asset.
