Modi's Money Moves Make Many Manic

When Prime Minister Modi chose to call in the two most commonly used Rupee denominations a month or so ago it seemed like a very good idea, intent upon doing very real damage to the criminals at work there and doing damage too to the black market. Having given Mr. Modi credit for wisdom and an understanding of the free markets better than perhaps any recent Indian Prime Minister, we thought that he and his associates in government had to have had the replacement currencies on hand, or very nearly so, and that the transition would be relatively painless. We were wrong. The Modi government has failed badly. 

We read that ATM machines across the country either haven't enough money on hand or in many instances haven't any money on hand. Banks are suffering with the same shortages, and when the banks suffer, consumers suffer. It is that simple.

Interestingly, the Modi regime tried very hard to sell the currency conversion in patriotic terms. As one letter-tothe-editor writer wrote to The New York Times international edition 

Mr. Modi packaged [the conversion] in the rhetoric of nationalism. As he announced the policy, the prime minister reminded Indians that in the history of every nation come times when "every person feels he too should be a part of the moment" and make "his contribution to the country's progress." This, Mr. Modi also said, was much like performing the Hindu purification ritual "mahayagya."  

Modi also "sold" the conversion on the government's supposed technical competence and for the first few days of the conversion process that technical competence and nationalist urge played well and seemed correct. It has since proved to be incompetence, played incorrectly. 

In the end, this has served the gold market badly, as we have written about previously, for India has been either the 1st of the 2nd most important buyer of gold for the past several years. When liquidity is restored... and eventually it shall be... gold will be supported by Indian investors now dismayed by what the Modi government has shown itself to be. Until then, however, gold may remain under pressure as Modi's moves make many Indians manic.