If we thought only Indians were obsessed with gold, we have been proven totally wrong. Even the inflation afflicted Vietnamese have shown a strong inclination towards the yellow metal. The government has been exploring various means to wean Indians off this gold obsession as it has been adversely impacting the current account. Soon after raising the import duty on gold, the RBI has come up with another solution.
No doubt investors flock to gold as the metal is an excellent hedge against inflation. Hence, the Reserve Bank of India's attempt is to divert attention to inflation-indexed bonds (IIBs). These bonds will offer investors an alternative to gold without hurting the economy's current account deficit. What neither the government nor the RBI realise is that a lot of the gold is bought by investors in semi-urban and rural areas as well. These are people on whom the sophistication of IIBs will be completely lost. Hence it is very unlikely that such bonds will do much to allay the government's 'gold fears'.
No doubt investors flock to gold as the metal is an excellent hedge against inflation. Hence, the Reserve Bank of India's attempt is to divert attention to inflation-indexed bonds (IIBs). These bonds will offer investors an alternative to gold without hurting the economy's current account deficit. What neither the government nor the RBI realise is that a lot of the gold is bought by investors in semi-urban and rural areas as well. These are people on whom the sophistication of IIBs will be completely lost. Hence it is very unlikely that such bonds will do much to allay the government's 'gold fears'.
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