How will the recent Gold Monetisation Scheme affect the foreign exchange and the BOP situation of our country?Use graph also.
 

Gold monetisation scheme will lead to a fall in imports of gold from foreign countries as the domestic requirements of gold would be fulfilled to a certain extent by mobilisation of gold available to households under the scheme. A fall in imports of gold will result in a fall in demand for foreign exchange and hence will lead to a leftward shift in the demand curve of foreign exchange as depicted in the following diagram.


Supply being constant, a fall in demand for foreign currency leads to a fall in it exchange rate. This results in a surplus BOP balance.