I have thought about this as well, why are Indians buying gold
when everyone is selling it?, The answer, the non convertible weak
currency stupid. If India ever has a completely convertible
currency then Indians will ditch gold for interest earning paper
just like everyone else. In the space of the the last 20
years the rupee has depreciated from 11 to the $ to almost 40$,
In such a scenario, if holding $ is illegal and holding gold can
be explained away as family wealth, what would you do?
The Economics is not so simple. I would recommend some old PBS
tapes of Adam Smith's "Money World" or "Economics USA" from your
public library (or ...if you are old fashioned ... you can
read a book :-)). These programs do a good job of explaining
the basics of "gold value", "covertible currency" etc.
Gold is an inverse measure of confidence in economy. In old
days of relatively unmanaged freewheeling economies, it served
as the anchor for wealth and California had its gold rush days.
In the case of India, there might be cultural addiction to it
(like US addiction to consuming oil/energy ?)...or
maybe people still think economy sucks :-) though I would think they
can invest in their own currency well enough even though stock/bond
markets have a long way to go before achieving better transparency,
better accounting and ease-of-use.
Exchange rate affects ability to buy traded goods. In case of
India, it probably like US imports its oil it might be affecting
most goods.
For a 40 year period, you have to look at domestic inflation rate
of India and US to get any real idea of reduction in people buying
power of traded goods. 12->40 in Rp also has to be compared with what
a dollar could buy 40 years ago or now does...and change in traded
goods.
However, in general, a floating currency
is better able to reflect economic competitiveness. In bad times
it discourages consumption of imported products (high prices!)
and rewards exporters of goods and services since they get better
return than people who sell in local markets.e.g In days of oil
embargo in US, price of oil promoted research/innovation to
produce more efficient cars.
Economics has too many variables and is complex even for experts
which is why so many people are able to get away with being
expert economists :-)
Take care... |
