Currency Valuation

“If income rises by 20 percent but the exchange rate depreciates by 20 percent against the dollar, then domestic incomes have not changed in terms of dollar purchasing power. As a result, there is no loss of cost competitiveness in the export sector. The pressure for structural change is removed.” – Michael Spence

If, however, the incomes do not rise then exchange rate depreciation will affect competitiveness. Therefore, it is essential to ensure growth in the domestic economy. Depending only on so called economic experts could pave the way for ‘Currency Wars’.

India is the only Country in the world where the population holds over 100 thousand MT of gold, about 18 to 20 percent of the world gold and about 40 percent of the world’s silver.

Indians have proven many times that when it comes to the Country they are prepared to surrender some of their gold to the Nation e.g.: when Netaji Subhas Chandra Bose called on the Indians in Malaysia, Burma, and Singapore for the Azad Hind Government and again when the Prime Minister Lal Bahadur Shastri called in 1965. This inclination can be greatly relied on if the Gold is taken in any future emergency against Gold Bonds guaranteed by the Government. After all the value of any person’s gold holding holds good only when the Country is strong and stable.

In view of all this, there should be no reason to not treat up to a half of the quantity as the reserves of the Government, held not by the Government but by its people and its temples. After all it is the Nation’s wealth, as are its people too.

All Western Governments and their Banks and Financial Institutions, which so far had been issuing Financial Instruments and Currency against stated reserves of Gold / Silver / Platinum / Chromium / Rare Earths and other such valuable metals are now indicating that such reserves DO NOT exist to the extent stated. This has presently resulted in a quiet and desperate effort by all of them to buy up as much of such reserves as possible. We too need to build up our reserves of such strategic materials, especially gold.

To continue to encourage the habit of Indians to hold gold, the Government should encourage people to buy gold (import) with a low tax rate of only one percent. Of course it should also, ban the export of gold, except as value added jewellery and other products, which can be taxed at 10/12 percent. The tax on jewellery sold domestically can be at say, at five / six percent. This will greatly strengthen the value of our currency, especially as most other countries cannot back their currencies with any such tangible asset.

The US Dollar is in demand today only because it is the currency in which oil is traded. The USA had gone to war against Iraq and Libya when those countries sought to replace the US Dollar with Euro and other currencies for sale of their oil. Today Iran is in a similar dangerous situation and the USA, in order to divert the attention of its population on the weakness of their currency and of inflation, would be looking for ways to stir unrest and conflict somewhere in the world and sell its stock of old weapons to those in the conflict and then build manufacturing in their Military-Industrial sector to replace such weapons.

Also, the value of a currency is greatly increased by foreign tourist demand, and the Budget should encourage inbound foreign tourists and also, domestic tourism. Also, a realistic value of a country’s currency against another country’s currency can best be done by comparing and giving appropriate weightage to the applicable factors: This will avoid the effect of hidden subsidies given by some countries. (See – “lnter-se Valuation of Currency & Monetizing Personal & Temples Gold & Silver Holdings”).

Indian currency is inherently stronger than most other currencies because of the domestic savings level and domestic consumption. Comparison of Purchasing Power Parity is a distortion as it does not compare equitably. A hamburger and a coke, may be street food in the USA and should hence be compared with an equivalent street food in India which would be a plate of ‘ldlis, or Samosa or Vada Pau along with say, a glass of Nimbu Pani, or Tea or Lassi’.

Control on the capital outflows also, greatly protects us from the fluctuations of the external currency markets. Implementation of a ‘Tobin’ like tax on short term withdrawals of investments may be considered and introduced.

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