Even as the Indian capital outflows and current account exodus may be threatening to shut down the economy altogether (except for the three oil companies that received a last ditch USD infusion from the RBI yesterday), the central bank is planning and strategizing. And it appears to have come up with more of precisely the same that has led it to its current unprecedented predicament: prevent the population from converting their wealth into hard money, i.e., gold. But while the government's attempts to impose capital controls on gold purchases have been well documented, the latest foray is just a headspinner. Reuters reports that India is now considering a "radical plan to direct commercial banks to buy gold from ordinary citizens and divert it to precious metal refiners in an attempt to curb imports and take some heat off the plunging currency."
Here we can safely assume that the commercial banks will pay for the gold in... Rupees which just hit an all time low?
And not just any rupees but rupees just fresh off the central bank's printer.
Ok, here's a hint: the "ordinary citizens" are not stocking up on gold so they can (profitably) sell it to the banks, the government, the BIS, to China, or to the JPM NY vault - they are doing so because they want to preserve their purchasing power. So what is the government's proposal? Why let's give people worthless pieces of paper for the asset that just hit a record high in rupees.