Money By Its Nature Is Not So Hot, But Loose Credit And Exchange Controls Make It So


WASHINGTON, DC - NOVEMBER 09:  Federal Reserve...
In an amusing modern twist on mercantilism, India has actually been trying to discourage gold imports. Last month, the Indian government increased its import tariffs on gold, silver, and platinum bullion imports to 10%. It also banned the import of coins and medallions in the hope that it might help stop the slide in the value of the rupee, which continued to fall to a record low last week.

Consistent with the old mercantilists, India already has rules requiring that 20% of imported gold be used in exported products, such as jewelry. Last month, the government expanded the categories of gold to be subjected to this restriction. The stated objective for all this is to reduce India’s current-account deficit, which hit record levels this year. It is hard to believe that they expect this to encourage capital inflows, but apparently they do.

India is not a gold producer, but even in South Africa (which is a major producer) some politicians are perennially dissatisfied with merely exporting gold. They want also to encourage (i.e., subsidize) beneficiation of gold and other basic commodities before export. They believe that policies intended to promote “adding value” would improve on market outcomes and increase export earnings.

Due to American low-interest-rate policies and “quantitative easing,” the central bankers in India and South Africa ...

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