Right now in India, there is a currency crisis going on. India is not a rich country. India is, however, a very populated country. There are over 1 billion people living in India. This fact alone makes India’s currency crisis enormous. Many of these people do not have bank accounts. The majority of people in India use cash (the rupee) to make day-to-day purchases. They also use large rupee notes to save in their own currency.
Because India is a very old country with a tumultuous economic history the people of India have learned to save wealth in the form of gold and silver. Gold and silver have been wealth and currency in India for century upon century. Conversely, Indian paper currencies come and go quite frequently.
A 1000 Rupee Note. Demonetized During India’s Currency Crisis.
Just as Indian paper currencies have failed in the past they are doing so once again. Up until very recently, the largest Indian rupee notes have had values of 500 and 1000 rupees.The citizens of India have for some time used these large rupee notes to save. Similarly, you might find it easier to save $50 and $100 bills. India is a poor and still technically challenged country. Some Indians horde these notes. They do not deposit them into the digital banking system. So, as you might imagine, many Indian families have amassed small fortunes. These are cash fortunes outside of the banking system. Bankers hate this. So do politicians.
India’s Currency Crisis Brings New Rules.
Perhaps you don’t see a problem with this, but the government of India does. The government would very much prefer Indians keep their wealth in a digital banking system. In such a system wealth can be much more easily monitored and taxed. To this end, there is a new decree in India which essentially makes every 500 and 1000 rupee note valueless after a certain date. This is called “demonetization”.
The Indian government offers an option, however. Citizens are supposed to be able to simply exchange their large notes for smaller notes and a new larger 2000 rupee note. Several reports state that none of the new the rupee notes have been produced in sufficient numbers to allow for an easy exchange. This is exacerbating India’s currency crisis. In addition, the highest government powers in India have let it be known that large currency exchanges will be monitored. Tax agents will investigate what the government deems suspicious transactions.
India’s Currency Crisis : Demonetized Into A Bank Account.
Very likely those that do pass taxation scrutiny will end up with only a small amount of their wealth being returned as cash. The rest of their wealth will likely be deposited in a new digital bank account. This is one type of crisis where gold comes in very handy. There are reports of Indian citizens queuing up at gold dealers and jeweler’s businesses. They seek to purchase gold with their large notes. Indians know that by moving their large paper notes into physical gold that they will retain their wealth. They trust that the notes become valueless in just a few days. The government of India is specifically saying that you can no longer count on the currency that it produces. This is definitely a currency crisis. The crisis, however, deepens and gets even worse.
Part Of India’s Currency Crisis Is Due To Counterfeiting.
Perhaps the strongest reason that the Indian government has for demonetizing its largest currency notes is just one more reason to hold gold rather than paper currency: counterfeiting. Counterfeiting is a huge problem in India. Perhaps for several different reasons. One, counterfeiting is an enticing option in a country where wealth opportunity is very limited. Two, it would seem that the economy of India requires more cash to function than the Indian government is able or willing to create. Some very reliable estimates say that somewhere between 25% and 33% of the 1000 and 500 rupee notes in circulation are counterfeit. Think about that.
If you knew that roughly one in three or four $50 bills and $100 bills were counterfeits would you still accept $50 bills and $100 bills? The answer is probably not. If one in three or one in four $50 bills and $100 bills were counterfeit, do you think from time to time you would be able to recognize a poorly made copy as a counterfeit? The answer is absolutely. In India, the counterfeit bills often spend right alongside the real bills simply because everyone agrees to use them.
Counterfeit Bills Spend.
In India, if you accept a counterfeit 500 rupee note you can expect to spend it with little hassle or repercussion. In the United States if you get caught holding or trying to spend a counterfeit bill you will not only be out the value of that bill or bills because the Secret Service will confiscate your counterfeit bill and want to inspect the rest of the cash you are carrying. You will also be invited- very nicely until you resist- to fill out forms and paperwork. The Secret Service will want to know about your past cash transactions.They will question your cash withdrawal history.
India’s Currency Crisis : Conclusion.
Learn from the trials and tribulations of more than a billion people. Paper is not wealth. Governments ruin monetary systems time after time on purpose by design. Governments inflate their debt away intentionally and crash currencies cyclically. As time goes on, the citizens get wise to the repeating currency life-cycles and opt out by owning gold and silver.
If other factors such as demonetization, counterfeiting, and heavy-handed government intervention make a fiat-based paper currency even less stable, then owning gold is an even better and stronger alternative. Call an ITM Trading representative today and begin the conversation about owning gold.