Indian Prime Minister Modi’s demonetisation drive has hit a major snag. He sold the program on the premise that tax evaders would be unable to wash their money through the banking system. That didn’t happen. Instead over 80% of all old bills were deposited into the banking system.
Businesses and individuals instead of producing value, were busy scheming on how to turn black money white. There were so many loopholes, that Modi was caught flat footed.
Indian’s love of gold was shown to be prudent. There is a reason why brides in India are decked in gold. It is a wealth transfer of massive proportions. Many believed that a bride’s gold was sacrosanct due to cultral factors, and no politician would dare strip brides of their lucre.
As predicted, Modi had to address Indian gold ownership for the digital currency drive to succeed. He recently decreed that gold is now subject to ex-post tax. Tax agents are raiding homes demanding owners poney up. Gold cannot be seized if it falls under certain thresholds. Married women are allowed 500 grams of jewellery, unmarried women 250 grams, and males 100 grams.
The most alarming facet of the “Raid Raj” is this tidbit: “Also, the ‘officer conducting [the] search has discretion to not seize [an] even higher quantity of gold jewelry.'” [Bloomberg] By giving tax agents’ discretion, Modi licensed theft. The tax man will demand a cut of your assets, otherwise he can legally confiscate them. As most people living in India know, just about every interaction with a civil servant involves some sort of bribe.
I am waiting for news reports about record numbers of applications for any open positions in the tax collection agency. Often times, the reason many people enter the government or civil service is to enrich themselves through bribery. Otherwise, why take a boring job that pays less than what can be earned in the private sector.
Bill and Hillary Clinton are role models. They admittedly left the White House “dead broke”. [PolitiFact] Since 2000, they have amassed a $100 million fortune. Their primary sources of income are speaking fees and income from their shady foundation.
After Hillary lost the presidential election, Australia ceased donating to the Clinton Foundation. The country had “donated” $88 million over the past 10 years. [News.com.au] Surely poor children in Africa still need help. I guess these “donations” were given for different reasons.
The India Blueprint
Savers globally should study how Modi has stolen from his subjects. First he banned the use of physical cash in an economy where 90% of transactions use that payment mechanism. While the salaried middle and upper-classes were unaffected because they are banked, the majority of the working poor now had two problems.
First, they had to waste precious time queuing at banks to deposit their money. Second, it became much harder for them to accept payment for their goods and services.
Gresham’s law dictates that bad money will be spent, and good money hoarded. Modi had to attack gold, the widely held form of good money. By unleashing corrupt tax agents onto the populace, Modi has effectively killed the free ownership of gold.
In 1933, FDR signed executive order 6102, “forbidding the Hoarding of gold coin, gold bullion, and gold certificates within the continental United States”. [Wikipedia] Owners had to sell gold to the Federal Reserve at $20.67 per oz., or face criminal charges.
China recently curtailed the ability of some banks to import gold.
Some banks with licences have recently had difficulty obtaining approval to import gold, they said — a move tied to China’s attempts to stop a weakening renminbi by tightening outflows of dollars, the banks added.
The hit to gold imports comes as China tightens restrictions on overseas deals by state-owned companies in an effort to limit capital outflows that has seen the renminbi fall to its lowest against the dollar in eight years. [FT]
Gold is the most trusted and liquid form of non-government issued money. Time and again it has been proven that physical commodity money has one major drawback. It is physical, so confiscating it from citizens is quite easy. It is tough to transport and store large amounts of gold without government knowledge.
Bitcoin is the most liquid form of cryptographic money. Because it is not physical, it is harder for governments to know you own it and subsequently confiscate it under the implicit threat of legal violence.
Rarely does the economic “ism” your country subscribes to guarantee economic freedom. Governments need control, and if gold ownership threatens their objectives it will be taken.
The challenge for Indians and other financially repressed people is how to acquire Bitcoin and other forms of cryptographic money.
It is harder to buy Bitcoin in American than it is in China. Circle, one of the largest VC funded payments / digital money startups, was initially founded with a vision to help people buy, store, and use Bitcoin. Due to oppressive financial regulations and harassment from state and government regulators, they cried uncle.
Circle will not longer help Americans buy Bitcoin. To their credit, Circle had one of the best customer experiences for buying Bitcoin. It is sad to see what happens in the Home of the Brave, and Land of the Free.
Contrast that to China, where you can deposit CNY through bank ATMs to fund your Bitcoin exchange account in minutes. There is ample liquidity, and no fees to trade Bitcoin.
There will not be a natural supply of Bitcoin in India until it is mined there. The 11% premium of Bitcoin in India will encourage entrepreneurs to start mining. Additional supply will come from businesses that can convert INR into USD and wire abroad. They will begin importing Bitcoin to sell at a generous markup.