Gold market: Freeing from smugglers, opening for investors

Why the policymakers of the country have not opened up the gold market to investors until now is inexplicable.  Holding gold freely or importing this metal is prohibited. There are many gold shops but these are mainly for the purpose of selling ornaments, normally worn by women in festivals and for attending parties. Otherwise, gold is not available for investment purposes or as an asset in competition with companies' stock holdings. 
In fact, gold has never been recognised by our policymakers as an asset worth investing. They have seen and regarded gold market as the place for selling only ornaments over the counters. 
What has kept the policymakers away so long from opening the market for investment by the rich and the middle class people? We believe the old idea among the policymakers that if this market is open, then foreign exchange will go out of the country, has kept this market captive so long. Policymakers think investing in gold is not productive though this idea should have been shunned long ago. One country after another, big or small, has opened up the gold market for investment. 
The policymakers worldwide consider gold just as another asset and freed the transaction of this metal from all restrictions. But in Bangladesh, bringing in gold over a certain pre-prescribed amount is illegal. The ornament shop owners or license-holders can import gold at a certain amount after paying import duties which the importers think are very high. Failing to import gold hazard-free, the shop owners turn to smugglers and baggage parties to source gold. The old worn-out gold is another source for them. 
As gold trade is highly restricted, the smugglers find a haven in it. They smuggle gold in and also out just to make money. When there is a demand for something and its trading is restricted, it only invites illegal trading of the same which is exactly taking place in Bangladesh in gold in front of every one's eyes. But still, the policymakers are not moving one inch from their rigid position. They are behaving like ostrich digging the nose under the sands. That position is costing the economy heavily: a forward gold market is not developing and the government is also not receiving taxes from this trade.    
Even shop owners of the gold ornaments do not pay Value Added Tax (VAT) against their sales. Why is gold so precious as an asset? It works as a hedging instrument for the investors. When investors think that other markets like that of stocks and commodity futures will go down, they hedge their investments by buying gold. It is not that gold investors win every time but it is still an asset for the investors. We wonder why the policymakers in Bangladesh are leaving the whole issue of gold import to the smugglers! 
Ironically also, the price of gold, as gold ornaments, is decided not by market competition or many players of market openly but by the gold shop-owners' association. This type of price fixing is not seen elsewhere in the Bangladesh economy but it is remaining there over decades.
Strange, nobody is raising a finger against the mode of price fixing. The only way of breaking the monopoly of price fixation by the shop-owners' association is to open up the gold market by freeing import and allowing holding of the metal for investment purposes. If gold market is opened, we believe, a part of the rich men's wealth will go for investment in gold and they will have less tendency of taking the money out of the country in unlawful way. 
Money cannot be kept in the economy by laws only; better option of keeping money at home is to open up the market for investment. The Finance Minister has recently announced that the government is going to formulate a gold policy. Though late, this understanding of the need for a gold policy is better than having none. 
We hope, the gold policy will be announced soon to free the market from grips of the smugglers. It is a fallacy, at least in modern days, that investing in gold is a waste of foreign exchange. But such investment does not lead to a run-down on foreign exchange.  The idea of a run-down on foreign exchange because of gold import dates back to 60s when world markets did not go global. 
The writer is Professor of Economics University of Dhaka.
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