The country of India has been struggling with an account deficient and a dependence on importation for some time now. As the latest in a line of potential solutions, the Indian government drafted a “gold monetization scheme” – which will allow citizens to deposit gold (including bullion, old jewelry and scrap) with banks to earn tax-free interest.
Gold has a lot of cultural significance for the people of India; there is an estimated 20,000 metric tons being held in Indian households. This new plan isn’t even the first to try and take advantage of this market. Since 1999, the State Bank of India has run its own gold deposit scheme. But, with a minimum required deposit of 500 grams (more than $17,000 worth) and low interest rates (around 1%) the program has only collected about 15 tons since its inception.
With the new scheme, individuals and institutions can deposit a minimum of 30 grams (about $1,000 worth) in the form of bullion or jewelry. However, the plan will be limited to select cities initially since it requires infrastructure for the secure handling of gold. When the plan is fully underway, the Indian government hopes that it can bolster its reserves and reduce the need to import gold. Will citizens participate? That will likely depend on if the interest rates, which are still TBD, make it worth their while.