Indian Rupee Imploding – Loses 20% of Value Since Start Of Year.

The Rupee, the currency unit mandated by the Indian Government, has gone from bad to worse since the beginning of 2013, becoming one of the world’s worst performing currencies. The Rupee took a 4% hit last night alone, clocking in at nearly 69 Rupees to 1 dollar. This a vast worsening from the somewhat stable 50 Rupees to 1 dollar that the Rupee has maintained for most of the previous year. This is the largest single-day crash since 1993.

If you’re as boring as I, then you may be asking yourself: Why is this happening? The short and easy answer is that India has been and still is controlled by Socialists who screw everything up for everyone, all the time. That makes me sound grumpy and jaded, but that doesn’t make it untrue. A more professional sounding answer is this: The Indian Central Bank has been tightening the noose on gold all year. An impact of this has been to increase demand to hold gold and decrease demand for Rupees.

Beginning with a increase in gold import duties from 2% to 6% in January, the Indian Government has slowly been turning up the heat on gold buyers with a steady increase in taxation on any transactions involving gold, and also introducing a number of new laws designed to make dealing in gold more unattractive. As of 2 weeks ago, the import of foreign gold bullion and bars is apparently illegal in most cases in India. They are going for the jugular. This is classic Mercantilism in action.

Why would they do such a thing? Because they want to push Indian citizens into using Rupees. The capital controls on gold are supposed to prevent gold from leaving the country and instead push it into the reserves of the Central Bank, while increasing demand to hold Rupees. Unfortunately for the Central Bankers, the opposite has happened: the demand to hold Rupees has plunged, while the demand to hold gold against Rupees is nearly higher than ever. This is because Indians recognize something: that their own government is not trustworthy, and that holding an inviolable asset such as gold is far safer than holding Rupees, which suffer in value from the terrible decisions made by Indian policymakers.

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