With production growth, Indonesia’s market share in the global gold and gold products industry will increase. Indonesia, with its abundant gold reserves, certainly has the potential to become the world’s largest gold producer. Bank bullion can serve as an accelerator for the development of the gold and gold products industry.
For the government, an increase in gold production can increase state revenue, especially from taxes. With higher added value, there will be other economic activities that will increase tax revenue from the gold and jewelry sector. Even though gold bars are not subject to 11 percent VAT, there is a potential for tax revenue from the gold production process – from gold ore to end-consumers.
In addition, the country can save on foreign exchange, which so far has been used to pay for gold imports. Meanwhile, the export value of gold and gold products will increase, as the added value of gold products increases. Ultimately, it will also create more jobs.
Although bullion bank brings significant benefits to the national economy and the domestic gold industry, there are several notes to gauge its readiness. The first note is related to regulation, whether the government has conducted an in-depth study on a bullion bank. Are Bank Indonesia (BI), the Financial Services Authority (OJK), the Finance Ministry, and the state-owned gold industry ready regulation-wise? The implementation of a bullion bank requires clear regulations and comprehensive roadmaps from the government.
Next, risk mitigation from rising interest rates, which will affect the performance of bullion bank. In the midst of a high interest rate today, it is necessary to examine whether the establishment of a bullion bank will be beneficial. Then, the risk of default which could increase the price of gold as collateral not commensurate with the interest rate charged.
From the perspective of rising public demand for gold as investment as well as the rich gold resources, the establishment of bullion bank is something positive. But can other support systems, from banks to pawnshops, help optimize the role of bullion bank. Bullion bank must also effectively act as a hub between domestic gold buyers and sellers.
The need for strong regulations
As the government has minimal experience in managing a bullion bank, regulation is of paramount importance. Various standing regulations, including the Banking Law, have not been able to accommodate the government’s goal to establish a bullion bank. For example, if the government appoints a state-owned bank, then there must be a regulation stipulating that banks are allowed to trade commodities. If a non-bank SOE is appointed, a new regulation is needed to regulate how it can provide services like a commercial bank. With strong regulations, assigning the management of a bullion bank to any SOE will be easier.
Read: BI to launch digital rupiah soon
The decision to establish a bullion bank should not be taken hastily. Caution and regulation should be prioritized. It must not create a problem for the gold and gold products industry. There must be a clear division of authority among from both financial and non-financial system regulators. The role of BI, OJK, ministries/agencies, even Commodity Futures Trading Regulatory Agency (CoFTRA) must be delineated as clearly as possible. In the end, the appointment of SOE as bullion bank is an important next step by prioritizing a SOE that has strong liquidity and good management. Appointing a commercial bank can be an alternative, considering that they (especially large state-owned ones) have good systems, liquidity, performance and management. The establishment of a bullion bank should not be rushed just for the sake of fulfilling the government’s ambition without devolving optimal benefits.
The interplay between regulatory readiness, stakeholders and the potential for large-scale gold production is the key to the success of a bullion bank. The hope is that Indonesia can become one of the influential gold players in the global market. Indonesia’s gold reserves held by its central bank can be the highest in ASEAN with the establishment of a bullion bank. In the end, the gold and gold products industry is expected to have a multiplier effect on the economy and create jobs, attract investment and improve the people’s welfare. (Nailul Huda)