Giving currency to a blatant lie in Gandhi’s name

“I promise to pay the bearer the sum of one hundred rupees,” reads a promise on a hundred-rupee note. This is, of course, a lie propagated by the government and the lie is accompanied by a picture of Gandhi. This lie appears in various magnitudes on different currency notes. Bigger the face value of the currency note, bigger the lie. The lie is repeated hundreds of millions of times every day when currency notes exchange hands.

The pieces of paper issued by the government are neither backed by any asset nor redeemable for real money such as gold or silver. If anything, even the empty promise starts depreciating in value as soon as one receives the promissory note. The depreciation is solely due to the inflationary policies of the government. That is the reason people move their savings to real estate or gold instead of holding on to the paper notes.

Even illiterates show that they are smarter than the proponents of paper currency when they discard the government-issued paper and acquire small amounts of gold ornaments as soon as they can do so. This is an indictment of the poor intellectual abilities of the country’s politicians and their economic advisers who have degrees from British and American universities. One economic adviser to the government has even described gold as a “social waste”, thus revealing his poor understanding of the nature of money.

The rupee has depreciated so much that it is not even worth the scrap metal it is minted on. There is even an entire cottage industry in Kolkata that melts one-rupee coins and makes razor blades out of them. This in turn has created a shortage of one-rupee coins in some areas leading to local businesses issuing cardboard pieces in lieu of the coins. That is a startling development and highlights the worthless nature of the government-issued currency.

It is high time that the government ended the system of forcing the people to use its continuously depreciating currency. The government should repeal all laws related to legal tender and remove every restriction on the mining, import, export or exchange of gold and other precious metals. There must also be no taxation on the earnings from transactions involving precious metals.

If precious metals circulate as currency and the government is forced to actually redeem its debt notes for gold, it will enforce fiscal discipline on the government. That in turn will prevent politicians from burdening the people with debt to enrich themselves. Consequently, inflation will be kept under check and this will lead to economic stability.

Gold and silver constitute real money and their value will not degrade to such an extent that they can be substituted by cardboard pieces. The pieces of aluminium or carbonised iron issued by the government do not constitute real money. Paper, too, is not real money even if such paper is issued by the government.

India is a nation of savers and the punitive inflation rate due to the the ban on the use of precious metals as money results in the rapid depreciation of savings. Poor people are hit the hardest by the ban as precious metals are the only source of financial stability within their reach. While wealthy people can buy real estate and protect themselves from inflation, this option is not easily available to the poor due to the high cost of real estate.

It is a tribute to the wisdom of the Indian people that they prefer gold over government-issued currency and are the world’s largest consumers of gold. Politicians should respect this choice of the people instead of imposing their paper as the currency.

The use of precious metals as money will ensure that no one has monopolistic control over the currency system. Gold and other precious metals accord freedom while the existing system is akin to slavery as the government can confiscate the stored fruits of one’s labour through the process of printing paper currency notes.

The existing system that is based on a lie in the name of Gandhi also goes against Gandhi’s own words in 1932 when more than 100 million dollars worth of gold was shipped to Britain: “If the outflow of gold continues, India soon will become bankrupt. We shall therefore be fools if we part with our gold in exchange for rupees or notes whose future value promises to depreciate toward zero, as did the value of the German mark.”

The author can be reached at arvind@classical-liberal.net