The gold policy of Bangladesh is in a very primitive stage. As per Chapter 6(4) of Regulation of Bangladesh Bank, there are no restrictions under the Foreign Exchange Regulation Act (FER Act) on the import of jewellery and precious stones. Import of jewellery and precious stones is, however, subject to the Import Trade Control Regulations. As per Chapter 6(11) of Regulation of Bangladesh Bank, Sub-section 2 of Section 8 of the FER Act prohibits export from Bangladesh of jewellery or precious stones except with the general or special permission of the Bangladesh Bank. Bangladesh Bank, however, has accorded general permission to all outgoing and incoming adult female passengers to take out of Bangladesh and to bring into Bangladesh any quantity of personal jewellery worn on their persons or as part of their personal baggage.
As per Chapter 6 (12) of Regulation of Bangladesh Bank, export of gold jewellery and silver jewellery from Bangladesh may be effected by exporters registered with the office of the Office of Chief Controller of Imports and Exports (CCI&E) as per normal export (EXP) procedure (described in Chapter 8). Back to back import LCs may be established by ADs for import of gold, silver and precious stones for manufacture and export of jewellery against export LCs received by registered jewellery exporters operating under the bonded warehouse system, subject to observance of the minimum domestic value addition requirement prescribed in the Jewellery Export Policy formulated by the Ministry of Commerce (10 per cent for gold jewellery, 15 per cent for stone-studded gold jewellery and 25 per cent for silver jewellery).
The Jewellery Export Scheme was issued by Bangladesh Bank ref FE Circular No:19 dated, the 27th March, 1986 for encouraging the export of jewellleries through a Gold Replenishment Procedure. The mode of procurement of gold and stones under this procedure shall be as follows: (i) An authorised importer shall initially use the gold and the stones from his own stock or the initial requirement of gold for manufacturing jewellery may also be provided by the Bangladesh Bank at the international market price prevailing on the day of delivery against undertaking Bank guarantee for export. (ii) Subsequent requirement of gold stones and other materials shall be imported through Sonali Bank against Special Import Authorisation (SIA) to be issued against export of jewellery under this scheme to the extent of 75 per cent of the FOB Value of the jewelleries exported.
In terms of Notification No. 1(2) ECS/48 dated 1st July, 1948 issued pursuant to sub-section (1) of Section 8 of the FER Act, 1947 Government has prohibited import of Gold, except with the general or special permission of the Bangladesh Bank.
INDIAN GOLD MARKET: Indian gold market was controlled in the 1950s in the same way what Bangladesh market is now. Indian gold market was controlled by the Gold Control Act, 1962, which canned all gold loans given by the banks and banned future trading in gold. The government urged the public to refrain from purchasing gold and surrender their holdings. Moreover, Indian government promulgated gold control rule in 1963 to impose severe restrictions on the gold market. Gold jewelry above 14 carat was banned. Government tried to exercise control over domestic trade and gold distribution was firmly established. The result was that the demand for gold remained strong as ever and gold smuggling became the order of the day. Smuggling of gold accounted to 30-70 per cent of actual imports. The Hundi transaction flourished to pay for the smuggled gold through remittances.
Again in 1968 the Gold Control Act was passed which restricted the public from possessing gold in the form of bars and coins. The citizens were asked to report about all their existing holdings of gold coins and bars which had to be converted into jewellery and declared to the respected authorities. Goldsmiths were also not permitted to own more than 100 grams of gold. Licensed dealers had to limit their capacity of ownership up to 2kg of gold, and this depended on the number of artisans employed by them. The dealers were outlawed from trading with each other. These steps were advocated on the belief that Indians would positively respond and stop the consumption of gold and to protect the country's foreign exchange.
But all the plans were backstabbed. This rule spoiled the official gold market and a large illegal market sprung up. A colossal underground market was created for gold.
Private gold ownership was restricted to jewellery (and coins already in circulation). Owning bars became illegal. Jewellery fabricators and retailers required licences to operate. Almost all bullion dealers stopped trading - at least officially. To fabricate new jewellery, the gold industry was obliged - theoretically - to rely entirely on the recycling of old gold scrap.
Government of India realised the impact of the restriction policy. Between 1990 and 2006, a different approach was adopted and the government introduced measures to deregulate the gold industry. The Gold Control Act was repealed. The domestic trade was deregulated. Merchants, fabricators, retailers and refiners could work without requirement for licenses..
The Indian administration thought it more judicious to permit free imports and procure the expenses as opposed to lose it all to the informal channel. The price of gold came down and the market demand increased; gold entered into market through official channel.
These pragmatic policies were designed to increase the share of official (as opposed to unofficial) gold imports, optimise revenue from Customs duty, stimulate the export of gold jewellery, improve the overall quality of gold jewellery fabricated in India, and encourage the recycling of gold jewellery in private hands, notably through the Gold Deposit Scheme.
Important initiatives include the introduction of official gold import schemes, notably the Non-Resident Indian (NRI) Scheme in 1992 and the authorisation of banks in 1997, the Gold Deposit Scheme in 1999, the hallmarking initiative in 2000, and on-going support for gold jewellery exporters. Official gold reserves in India increased.
Before the liberalisation of the Indian economy in 1991, only the Minerals and Metals Trading Corporation of India (MMTC) and the State Bank of India (SBI) were allowed to import gold. The abolition of the Gold Control Act in 1992, allowed large export houses to import gold freely.
In 1993, gold and diamond mining were opened up for private investors and foreign investors were allowed to own half the equity in mining ventures. In 1997, overseas banks and bullion suppliers were also allowed to import gold into India. These measures led to the entry of foreign players like DeBeers, Tiffany and Cartiers into the Indian market.
In 2013, The Reserve Bank of India introduced 80:20 scheme. Under this scheme 20 per cent of the total gold imports were to be exported back. Further imports were not permitted if this 20 per cent norm is not met by importers.
The present Indian government introduced Gold deposit scheme. This scheme is expected to function identically like bank account. In case of bank account, individuals receive interest for their deposit. Similarly, this scheme will provide interest to the households and jewellers for the gold deposit they make with the bank. The bank will also lend the deposited gold to the jewellers who require gold for their daily business purpose. The scheme will help to reduce gold imports. Secondly, the gold that is unproductively stashed away in household lockers can be brought into circulation.
India has also introduced Sovereign Gold Bond. This gold bond will work like any other bonds that the Government issues to borrow money for numerous activities. In a gold bond the households operating as investors will be able to lend money to the government by investing in a bond whose price is based on the price of fixed amount of gold. After the sales of the gold bond, the bond holder will receive an amount equivalent to the value of gold on that date. Indian gold market is now one of the largest gold market and they are leading jewellery exporter in the world.
The gold market of Bangladesh is still in pre-1962 period of India with full of restriction and control. Imports are restricted and gold traders and exporters cannot import required gold for local and export market. There is no import of gold for last many years as per import statistics and the market is fully dependent on smuggling from some Middle East countries. The country needs to adopt a liberal gold policy at an early date, taking the lessons from India’s experience.
The writer is a Legal Economist.