India people should stop hoarding gold: it is unproductive!
Indian people are the world’s largest consumers of gold. They possess $200 billion of it, equal to nearly half of the country’s bank deposits. By any definition, investment in gold is unproductive. In the meantime, the country has saving rate and investment rate that is much lower than China; While the country is thirsty of finance, Indian banks put nearly 50% of depoisits in government bonds. Very unproductive!
According to a McKinsey report, Indian government has proposed to let Indians buy virtual, or “paper,” gold in denomination as low as $2. Savers can trade in it and get the current market value of whatever quantity they had bought. The goal is to let banks make loans based on their gold deposits, as they now do with cash deposits.
It may be wasteful, but when all currencies are fiat, it is simply an insurance policy against paper money depreciation. Indians must have a long history of government confiscation of their purchasing power, and/or perhaps a hard and fast tradition of preference for what you see vs. what is promised. I can sympathize with that.
Posted by: Katy | January 31, 2006 at 09:13 PM