Apropos the report "Interest on gold deposits may be exempt from tax" (May 20), gold monetisation increases the high powered money in the system by considering gold deposits with banks as reserves. This would have interesting pros and cons. It increases money supply in the system. In some ways, it also amounts to re-entering the gold standard for the economy, in which individual banks must do self-regulation unlike its original avatar in which the central bank was the sole overseer.
I think it would deliver, provided due care is taken to avoid advances to wasteful activities that might generate higher returns in the short-run, but do not lead to sustained growth patterns. The risks are now going to be shared by the entire system and will depend on gold prices.
Tallury Syama Sundar Hyderabad
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