Gold has fascinated humanity for thousands of years, with its beauty and lustre catching the eye of people all over the world. According to the National Mining Association, gold was first used by cultures in modern-day Eastern Europe in 4000 BC to make decorative objects. For a couple of thousand years, gold was primarily used to create items such as jewellery and idols for worship.
Around 1500 BC, the ancient empire of Egypt, which relied on its gold-bearing region, Nubia, for economic growth, established gold as the first official medium of exchange for international trade. The shekel, a coin weighing 11.3 grams, was created from an alloy called electrum, which contained about two-thirds gold and one-third silver, and became the standard unit of measure in the Middle East.
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The Babylonians discovered the fire assay method during this period, which is still used to test gold purity. The Egyptians discovered they could alloy gold with other metals to create a stronger and more colourful pigmentation around 1200 BC. Additionally, they experimented with lost-wax casting, a casting method that can be used to create intricate gold sculptures, which is still used to this day.
Gold’s allure hasn’t diminished over time, and it remains one of the most precious metals on Earth. Its history is a testament to its value, and its use in trade and industry continues to this day.
HISTORICAL COMPONENT IN CURRENCY MEASUREMENT
Throughout history, gold has played a significant role in shaping the world’s economic systems. However, it wasn’t until around 1500 BC that gold became the first official medium of exchange for international trade, with Egypt creating the Shekel coin. Fast forward a few hundred years to Lydia, a kingdom in Asia Minor, where the first minting of pure gold coins began around 560 BC. The Romans also began issuing a gold coin called the Aureus in 50 BC, and by 1284, Great Britain had issued its first gold coin, the Florin. In 1787, Ephraim Brasher struck the first US gold coin. In 1792, the US government passed the Coinage Act, establishing a bi-metallic silver-gold standard that lasted until 1976.
The California Gold Rush of 1848, triggered by John Marshall’s discovery of gold flakes in a stream, led to the settlement of the American West and inspired The Oregon Trail computer game. South Africa has been a significant source of gold since 1868 when George Harrison discovered it in his backyard, with 40% of the world’s mined gold coming from the country. Gold’s role in currency and trade has evolved over time, and while it’s no longer used to back up currencies or as the world reserve currency, it remains a highly valuable and sought-after commodity. Gold was once a crucial component in supporting national currencies, serving as the backbone of the world reserve currency for most of the 20th century.
THE FALL OF GOLD STANDARD
The gold standard was once the foundation of global currencies. However, the rise of World War I led to the temporary suspension of the gold standard as countries needed to print money to pay for their military involvement, resulting in hyperinflation. Despite the gold standard’s previous success, its inability to hold up during tumultuous times resulted in negative sentiment and low confidence in it going forward.
The Great Depression was the final blow for many countries, causing them to suspend or abandon the gold standard altogether.
President Franklin Delano Roosevelt implemented measures to prevent gold hoarding, leading to the Gold Reserve Act in 1934, prohibiting the private ownership of gold and allowing the US to pay off debts with dollars instead. With the outbreak of World War II, some countries eventually went back on the gold standard.
The Bretton Woods Agreement was created in 1944, creating a framework for all international currencies backed by gold. However, the US dollar became the de facto currency for the rest of the world, as the US held most of the world’s gold reserves. The gold standard was ultimately abandoned in the United States in 1971 when President Nixon discontinued it.
Although the gold standard has been abandoned, its legacy remains important. The gold standard created stability for currencies and international trade, and its history serves as a reminder of the importance of stable monetary systems in global economies. Before the abandonment of the gold standard, countries had to ensure that their paper currency was backed up by an equal amount of gold in their reserves. This practice limited the amount of money that nations were allowed to print, preventing excessive inflation. Despite the abandonment of the gold standard, some economists believe that a return to this system could be beneficial due to the volatility of fiat currencies like the U.S. dollar. The gold standard could serve to limit currency inflation and bring stability to the global economy.
GOLD IN BENGALI CULTURE AND LIFESTYLE
Gold has played a significant role in Bangladeshi culture and lifestyle for centuries. From weddings to religious ceremonies, gold is an essential part of the Bangladeshi tradition. During the wedding ceremony, the bride is adorned with gold jewellery, which symbolises prosperity and wealth. Gold jewellery is also given as a gift to the bride by the groom’s family as a part of the dowry system.
The gold is then used to create ornate decorations and fixtures in the places of worship. Gold is also used to make religious artefacts, such as statues of deities, which are believed to bring good luck and prosperity to those who worship them. In addition to weddings and religious ceremonies, gold is also used in daily life in Bangladesh. Gold jewellery is also often passed down from generation to generation as a family heirloom and financial security.
GOLD SECTOR’S PROSPECTS
Bangladesh has long been known for producing some of the finest quality gold ornaments and jewellery in South and Southeast Asia. However, the industry has not reached its full potential due to several limitations, including a lack of financial support, a local market, and most importantly, restriction on gold imports. The industry’s major constraint is the supply of gold, which was banned from import until the government formulated a policy and issued the Gold Policy 2018 to allow the import of gold under strict regulation. As a result, the industry had been dependent on gold supply from passengers of middle-eastern countries under the baggage rule and smuggling by professional smugglers since independence.
The lack of government support has resulted in the industry’s inability to develop in the areas of technology, production processes, design, and innovation of jewellery products. The artisans of the industry have a long-standing reputation as producers of the finest quality gold ornaments and jewellery, but they have been unable to compete with other countries due to these limitations. In 1985, the Bangladesh Bank formulated a scheme outlining guidelines and procedures for exporting gold jewellery, but these efforts did not result in significant growth for the sector until the 2018 Gold Policy was issued by the government. The policy allowed for the import of finished gold in the form of bars and jewellery, but not gold ore. However, in 2021, the government amended the policy to allow for the import of unrefined and partially refined gold and gold ore. This change has paved the way for the establishment of gold refineries in Bangladesh.
The Bashundhara Group is set to become the first company to establish a gold refinery in Bangladesh. The refinery, to be located in the Kuril area of the city, is expected to employ around 8,000 people and require an investment of at least Tk 3,500 crore. The move towards establishing a domestic gold industry is an important step for Bangladesh, GOLD SECTOR’S PROSPECTS which has long relied on imports to meet its demand for the precious metal. With the establishment of gold refineries, the country can now take control of its own supply chain and potentially become a major player in the global gold industry.
Bangladesh hopes to tap into the nearly $230 billion global gold jewellery market by refining its own gold, as well as meeting local demand for finished gold products, and exporting finished gold and jewellery. Research indicates that the global jewellery industry.
IS BANGLADESH A HUB FOR GOLD SMUGGLING?
Under the Baggage Rules-2016, travellers can legally bring up to two gold bars weighing 234 grams or 20.07 bhori, paying Tk 40,000 in customs duty. Last year, approximately 60 tonnes of gold bullion and ornaments were legally brought into the country. However, the local demand for gold ranges from 20 to 26 tonnes, and much of it is recycled, leaving the rest to be smuggled to India. Customs and CID officers estimate that over 30 tonnes of gold legally brought into Bangladesh by travellers last year were smuggled to India.
This shocking revelation is in addition to the gold bullion that makes its way to India through Bangladesh after being smuggled into the country. According to industry insiders and customs officers, India has one of the world’s largest gold markets, making it a prime target for smugglers. Recent seizures by the customs intelligence department suggest an increase in gold smuggling, with 174kg of smuggled gold seized in the last fiscal year and over 201kg recovered in the first 10 months of 2022. Border Guard Bangladesh also seized 50.79kg of gold from smugglers in 2021, with over 55.49kg seized this year alone.
Officials said smugglers buy gold bullion from Dubai, Saudi Arabia, Singapore, and Malaysia before contacting Bangladeshi individuals flying back home. The smugglers provide the legal amount of gold to carry back home and give the travellers tax money and an additional amount in return for the favour.
Only about one out of every ten stashes get caught, according to a top official of the Criminal Investigation Department. Interestingly, since the gold policy was enacted in 2018, only 253kg was imported for business purposes through an LC (letter of credit) as of February last year, according to Abdur Rouf, the immediate past director-general of the Customs Intelligence and Investigation Directorate (CIID).
ROHINGYA REFUGEES, A NEW FRONTIER FOR SMUGGLING
Rohingya refugees who fled from Myanmar to Bangladesh have been involved in a range of criminal activities, including drug peddling, gold smuggling, and illegal trading of counterfeit money, kidnapping, and robbery. Despite hundreds of arrests and charges, law enforcement officials are struggling to control the community’s criminal activities. Recently, a mother-son duo was apprehended in Chittagong’s Jungle Salimpur area, hiding their identities in a rented house, with gold bars worth Tk 1.5 crore, along with other items including chains, bangles, and earrings.
The Narcotics Control Department’s Metro Region Deputy Director, Mukul Jyoti Chakma, said that Rohingya refugees have become a major concern in Chittagong as they are now involved in selling and carrying drugs and have even started smuggling gold. The department has recovered three gold bars and 1,329,825 pieces of yaba, along with some Tk 190,000, from them at different times. Sources from the department reported that 13 Rohingyas were arrested in 2017, 30 in 2018, 26 in 2019, 91 in 2020, 186 in 2021, and 116 till June 2022 with drugs, money, and gold bars.
EFFECT OF GOLD SMUGGLING ON NATIONAL REVENUE
A top customs official has revealed that the government earned almost Tk 500 crore in revenues from travellers who brought gold under the Baggage Rules last year. Importing gold through LC (letter of credit) is much more expensive, with a tax of over Tk 7,000 per bhori, said Dilip Kumar Agarwala, the general secretary of the Bangladesh Jewellers’ Association (Bajus). Shamit Ghosh Apu, a member of Bajus, explained that this is why many jewellers buy the gold bars people bring under the Baggage Rules. Gold smugglers use Bangladesh as a transit country because regulations on gold imports are stricter in India than in Bangladesh, Shamit added. Gold is often used for illegal transactions to evade tax through under-invoicing.
It is concerning that smugglers are using Bangladesh as a transit point for gold smuggling. The authorities must take strict measures to combat this illegal practise and prevent the smuggling of gold out of the country.
This rampant gold smuggling not only hurts the country’s economy, but it also poses a significant risk to national security. In a startling revelation, it has been reported that members of a gold smuggling racket receive gold from travellers after they arrive in Bangladesh. According to Sanuwarul Kabir, the deputy commissioner of Dhaka Customs House, over four tonnes of gold bullion were brought through Hazrat Shahjalal International Airport under the baggage rules in January last year.
WHAT HAPPENS TO THE SEIZED GOLD?
In Bangladesh, all illegal gold, whether in the form of bullion or ornaments, seized by government agencies is stored in a secured vault at the Bangladesh Bank (BB). According to a BB official who spoke on the condition of anonymity, the central bank has a seven-layer security system to enter the vault where the gold is kept. The official added that even the BB governor has to go through the same security checks if he wishes to visit the vault.
Once illegal gold is confiscated by government agencies, they contact the central bank, which then fixes a date for receiving the gold. On that day, the seized gold is taken under police escort to the BB vault in the capital’s Motijheel. Staff members of the bank test the gold to determine its purity and weight.
If a case is filed over the seizure, the gold is not added to the reserves until the lawsuit is disposed of, said Kazi Saidur Rahman, general manager of Bangladesh Bank. Bullion that meets international standards is added to the foreign currency reserves after the BB deposits with the state exchequer the money equivalent to the bullion’s market price, he added. When it comes to gold ornaments, the central bank sells them through open tenders and deposits the money in the exchequer.
IS BANGLADESH READY FOR GOLD’S RETURN AS STANDARD?
Central banks around the world are increasingly turning to gold as a safe haven investment in an attempt to diversify their reserves away from the US dollar. According to a survey conducted by the World Gold Council in 2020, about 20% of central banks surveyed intend to increase their gold reserves over the next 12 months.
Despite the trend of central banks around the world ramping up their gold purchases, the Bangladesh Bank has no plans to increase its gold reserves, according to three BB officials. The bank currently holds $820.518 million of gold and has invested 85% of its foreign exchange reserves in different top-rated commercial banks and the Federal Reserve, with the rest invested in various currencies. The officials noted that investing in gold by institutions and individuals is unheard of in Bangladesh, resulting in a shortage of experts to analyse the global gold market. A survey conducted by the World Gold Council found that 88% of respondents consider negative interest rates to be a relevant factor in their reserve management decisions.
Additionally, 79% of respondents believe that gold’s performance during times of crisis is a key reason to hold the metal, while 74% cite its lack of default risk as an important factor. Many central banks have increased their gold reserves since the 2008 financial crisis to mitigate risks associated with fiat currency. With ongoing economic uncertainty, it remains to be seen how central banks will adjust their reserve management strategies in the future.
Bangladesh Bank (BB) has purchased 10 tonnes of gold from the International Monetary Fund in 2010 to diversify its foreign exchange reserves. However, the executive director of the Policy Research Institute of Bangladesh, Ahsan H Mansur, stated that there is no need to invest in gold or other products given the profit on a short-term basis. He added that the US dollar will dominate the global market for the next 15-20 years and that the central bank should gradually shift investments from the dollar to other products.
In conclusion, while gold is considered a safe haven asset in times of recession due to its stability, Mansur believes that the price of gold will remain stable until the end of the ongoing recession, though the fact is proving wrong gradually, as gold price is in increasing in Bangladesh as well as in the whole world. The weakening US dollar is driving the push into gold, as the metal’s price traditionally increases when the dollar depreciates. So, now it’s the time for Bangladesh to rethink about its future decisions on stocking gold and act like other state banks of the world do.