India can learn from Turkey how to monetise gold stocks: WGC

By: | Published: January 23, 2015 12:17 AM

Commercial banks in Turkey held around 250 tonne of gold — worth $10.4 billion — in deposits by the end of 2013...

Commercial banks in Turkey held around 250 tonne of gold — worth $10.4 billion — in deposits by the end of 2013, an example India can emulate to monetise huge gold stocks lying with its households to trim imports and maintain trade equilibrium, according to the World Gold Council (WGC).

In its latest report, the WGC said the gold held with the banks include 40 tonne worth around $1.7 billion of Turkey’s “under-the-pillow” stock (a term used in Turkey to refer to physical gold stored by the general population), which has been mobilised between mid-2012 and end-2013. This is despite the fact that gold holdings by Turkish households are estimated to be between 3,500 and 5,000 tonne, way below the 22,000 tonne hoarded by their Indian counterparts.

Although some Indian banks offer schemes to attract gold deposits, they have failed to attract customers, thanks to the stipulation that each person must deposit at least 500 gram. In a stark contrast, one can desposit even a gram in their gold account in Turkey.

Indian policymakers have in recent years blamed massive gold imports for the country’s elevated current account deficit (CAD) and sought to curb purchases from overseas with restrictive measures, including a 10% customs duty on the metal.
While the government has been looking for a long-term solution to the issue of gold supplies, balancing the interest of millions of workers in the bullion industry with the needs to curb trade deficit, industry executives, refiners and the WGC have suggested policymakers to look at ways to monetise huge gold stocks lying with households through the banking system.

The latest WGC report said: “In 2012 alone, gold fabrication, consumption and recycling added at least $3.8 billion to Turkey’s economy. An innovative central bank policy introduced in 2011 incentivised commercial banks to create a range of gold-backed banking products to mobilise Turkey’s stock of gold. This improved the health of the banking sector by reducing costs and improving liquidity, as well as ensuring commercial banks boost their gold reserves.”

Seda Yilmaz, vice-president (retail marketing) at Kuveyt Turk Participation Bank, said customers can get gold coins through the ATMs of her bank. Interestingly, Kuveyt has developed such a system through which a person in any part of the world can buy gold coins from the bank online and gift it to a person based out of Turkey. A code will be sent to the cell phone of the beneficiary, who has to go to the nearest ATM of the bank in Turkey to collect the coin using the code number.

(The trip for this report was sponsored by the World Gold Council)

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