Indonesia Introduces Bullion Banking to Stabilize Foreign Exchange

Indonesia is launching formal bullion-based banking, joining other nations that already have opened their financial systems to gold. The system, that is being promoted by the government, aims to maintain the gold that is being produced in the country, offering bullion savers gold-focused financial instruments.

In this first rollout, only two institutions will start offering gold-based banking. PT Bank Syariah Indonesia and pawnbroker PT Pegadaian, a unit of PT Bank Rakyat Indonesia, will be the state-owned organizations involved in this rollout. Nonetheless, government officials told Bloomberg that more licenses could follow.

The move is considered natural, given that the nation is considered the largest gold producer in the region. Prabowo Subianto, president of Indonesia, noted that the final goal of this implementation is to help achieve monetary stability.

In a meeting with ministers during the launch, Subianto stated that bullion banking “can help save the country’s foreign exchange, because from upstream to downstream gold will be processed and stored domestically.”

Indonesia aims to reel part of the 1,800 tons of gold owned privately by citizens into vaults, offering custody and other services. Gold, which is considered a value hedge in the country, is traditionally maintained domestically, apart from financial entities that could harness it for other purposes.

“We want to invite the public to trust the formal financial system,” said minister of state-owned enterprises Erick Thohir.

Before the launch, senior minister Airlangga Hartarto remarked on the value of gold for Indonesians. “In every crisis, there are only two safe haven instruments: the American dollar and gold,” he stated.

Bullion banking is dominated by a few institutions globally, led by JPMorgan and HSBC. They are part of the London Precious Metals Clearing Limited, the company that settles London’s gold transactions.

Read more: Gold Suppliers Face ‘Unprecedented Demand’ as Large Investors Flock to Precious Metal

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