Traffic flow during the evening rush hour in Jakarta, Indonesia, Jan 7, 2025. [Photo/Xinhua]
Indonesia launched on Feb 26 its first gold bullion banks, a move aligned with the country's move to develop its metal processing industry and promote local management of gold deposits.
Indonesian President Prabowo Subianto, who led the Wednesday's launch in the capital city of Jakarta, said the banks will help raise the country's GDP, create 1.8 million new jobs, strengthen foreign exchange, and help save state forex as gold will be managed in Indonesia, from upstream to downstream sectors.
The newly established bullion banks will be supervised by the Financial Service Authority (OJK). Two companies will provide the bullion services – the state-owned pawnshop PT Pegadaian – a subsidiary of Bank Rakyat Indonesia; and the Bank Syariah Indonesia, the world's largest Islamic bank in terms of customer numbers.
Erick Thohir, minister of state-owned enterprises, said Indonesia's gold reserve currently reaches 201 tons, which is placed at Bank Indonesia (Central Bank), PT Pegadaian, and Bank Syariah Indonesia.
Indonesia is one of the world's biggest commodity exporters, with its huge mineral reserves boosting export revenues. Indonesia is also Southeast Asia's largest gold producer, with an annual output of over 130 metric tons.
But the Indonesian government is aiming to move up the commodity value chain by promoting 'hilirisasi' (downstreaming) – shifting investments from raw ore mining to minerals processing.
Indonesia has opened its first bullion bank at a time when world gold prices are hitting a record high of nearly $3,000 per ounce, as geopolitical tension pushes demand for safe haven assets.
Josua Pardede, senior economist at Permata Bank in Jakarta, said a bullion bank in Indonesia can significantly boost the downstreaming industry and help achieve the 8 percent growth target set by Prabowo.
"The bullion bank aligns with Indonesia's goals of achieving 8 percent GDP growth," he told China Daily.
Pardede said the newly established bullion bank would also promote domestic metal processing.
"The bullion bank can mobilize about 1,800 tons of idle gold stored in Indonesian households by converting it into financial products and deepen financial markets, while promoting financial inclusion," Pardede said.
Acting as an intermediary in the gold value chain, the bullion bank enhances supply chain efficiency, supports downstream integration, and provides financing for gold-related industries, boosting local manufacturing and economic growth, Pardede said.
He said that, with adequate strategies and regulation, the newly established bullion bank has the potential of becoming an important pillar for Indonesia's economic transformation, strengthening its economic resilience, and optimizing the potentials of gold domestically.
"By monetizing domestic gold, Indonesia's dependence on gold imports can be reduced, which would indirectly help strengthen the country's balance of trade," he said.
Arman Hakim Nasution, a lecturer and an analyst at Surabaya Institute of Technology in East Java, said standardization of gold products is highly needed for guaranteeing the quality of gold managed by the bullion bank.
"SNI (the Indonesian National Standard) is very important to ascertain the quality of gold, mitigate risks, and make it easier for banks to accept gold guarantees," Naution told KBRN, the national radio news agency.
The government issued the so-called Indonesian National Standard that aims to protect local consumers from low-quality products, including imports. The national standardization was based on a government regulation issued in 2000.
Prime Sarmiento in Hong Kong contributed to this story
