[Links] Reading: Financial oppression, preferential treatment of gold imports by the RBI

The two links below are from some of the readings I do online which I believe you, my readers, will be interested in.

China's Financial Repression and Alibaba's Banking Arbitrage

Chinese financial repression is stark. It’s citizens save about 50% of GDP as a buoy against health and retirement uncertainties in a country where social security nets doesn’t exist. To harness these huge deposits from its people, the four big banks practice financial repression. They take deposits at ridiculously low rates and lend them to the government.

Furthermore, in order to avoid having overly curious customers, they restrict investment options making them few and privileged. It is really a welcome sign that internet companies like Tencent and Alibaba are opening online banks. They intend capturing the undiscovered huge Chinese deposits, then investing them in higher yielding money market funds. Whether the Chinese government will allow this practice to last long can only be imagined.

Bank of China Tower

Credit: Wikimedia Commons

The FM’s gold schemes will not control gold imports. This simple measure will

.

Gold imports made a significant 3% contribution to India’s 4.7% current account deficit (CAD) for financial year, FY, 2013. Troublesome at best, the current Finance Minister, has initiated two measures to stem these imports.

1. Gold monetization scheme.
2. Creating a Sovereign Gold Fund, whose assets would be more attractive than gold deposits in financial institutions.

But, VK Sharma, Former Execuitive Director of the Reserve Bank of India, writes that in the Indian context, these two schemes will not work. What will is for the RBI to remove the preferential treatment and status gold imports enjoy with respect to non-gold imports. These significant, unwarranted and perverse incentive has made gold very attractive and free from price and currency risks.