The Indonesian government is currently developing a bullion bank, a financial institution designed to handle large-scale trading, storage, and management of precious metals. This initiative represents a national economic policy breakthrough aimed at strengthening macroeconomic stability.
Economist from the Department of Economics, Faculty of Economics and Business, Universitas Gadjah Mada (FEB UGM), Dr. Wisnu Setiadi Nugroho, views the presence of a bullion bank as playing a greater role in deepening financial markets rather than directly driving real economic growth.
According to him, a bullion bank primarily functions to create liquid gold-based instruments, improve transaction efficiency, and strengthen the financial system.
“Its impact on economic growth is indirect, mainly through macroeconomic stability and increased investor confidence,” he said at FEB UGM on Friday (Jan. 9).
He explained that strong gold reserves can help mitigate exchange rate risks. Gold-based instruments, he added, also have the potential to enhance the attractiveness of capital markets.
However, without strong integration with the real sector, such as through financing for industry or micro, small, and medium enterprises (MSMEs), its contribution to Gross Domestic Product (GDP) would remain relatively limited.
“There is a risk that the existence of a bullion bank would primarily benefit large market players, rather than MSMEs,” he noted.
Could a bullion bank replicate the success of nickel downstreaming?
According to Dr. Nugroho, a bullion bank cannot be equated with the achievements of nickel downstreaming.
Although its impacts are still debated, nickel downstreaming is supported by a clear industrial value chain, from raw ore to intermediate products such as electric vehicle batteries, while gold has different characteristics.
“Gold is different because it is more widely used as a store of value and a financial instrument, rather than as a mass industrial raw material,” he explains.
Dr. Nugroho reiterated that a bullion bank cannot fully emulate nickel downstreaming. By nature, a bullion bank does not focus on manufacturing, but rather on monetising gold reserves and creating gold-based financial instruments.
Amid the rising global trend in gold prices, another lecturer from the Department of Economics at FEB UGM, Dr. Diny Ghuzini, emphasised that the government needs to prioritise efforts to maintain economic stability and gold reserves.
While active trading can generate profits for investors, she stressed that economic stability must remain the top priority.
“Historically, although the economies of emerging market countries tend to improve after shifting from a fixed exchange rate regime to a floating exchange rate regime, their reserves do not show a decline. One of the reasons is precautionary motives in anticipating economic conditions, and this can also apply to gold reserves,” Dr. Ghuzini explained.
Dr. Ghuzini acknowledged that global trends show an increase in gold reserves among developing countries. Data from the International Financial Statistics (IFS) 2025 indicate positive growth in gold reserves in developing economies, with no change or decline recorded in developed countries.
“The motivation behind increasing reserves is that gold is considered a safe alternative instrument that also offers higher returns compared to other instruments, such as US Treasury securities. Global uncertainty and geopolitical risks also push countries to seek alternative instruments,” she elaborated.
Furthermore, Dr. Ghuzini noted that the development of a bullion bank does not automatically place Indonesia on par with countries holding large gold reserves, such as the United States, Germany, Italy, China, and Australia.
In absolute terms, Indonesia’s gold reserves remain relatively limited, despite the country being among the world’s gold producers.
Reporter: FEB UGM/Kurnia Ekaptiningrum
Author: Agung Nugroho
Post-editor: Rajendra Arya
Photographs: Kumparan & FEB UGM