November 23, 2016

Think deeply... gold can never be demonetised

Across the centuries, gold has always served as reliable medium for exchange and value. Yet, no government has ever been able to demonetise it. 

Any government can demonetise its currency at its own whim and fancy. That Rs.2,000/- note you are holding in your hands and which means so much to you can suddenly become useless if some higher up feels so.

But you cannot demonetise gold. There is only a limited quantity available and you cannot print or manufacture as much as you want.



Now this creates a problem for all governments... they like to control the assets but with gold lying in your house, it becomes difficult if not impossible. So in other countries, you have draconian laws which allows a government to declare you a criminal or an enemy of the state if you do not hand over your gold to them.

No government likes you to be in control of your wealth. Which is why they every now and then want you to surrender your gold or bring it in the market and so on. And that is why we have sovereign gold bond schemes so that the control stays with the government while giving you the illusion of ownership. Which is why that while you can surrender the certificate and get money, the certificate is never redeemable in  gold.

Read this...

Image result for gold confiscation

The above actually happened in 1933 in US.
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The stated reason for the order was that hard times had caused "hoarding" of gold, stalling economic growth and making the depression worse.

The private ownership of gold certificates was subsequently legalized in 1964. They can be openly owned by collectors but are not redeemable in gold.
And the last section in the executive order.

Section 9. Whoever willfully violates any provision of this Executive Order or these regulation or of any rule, regulation or license issued there under may be fined not more than $10,000, or,if a natural person may be imprisoned for not more than ten years or both; and any officer, director, or agent of any corporation who knowingly participates in any such violation may be punished by a like fine, imprisonment, or both (source: http://www.knology.net/~bilrum/goldconfiscation1933.htm).
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