The Philippines' Central Bank Calls Gold An Investment

In 2020, Philippine Central Bank governor Benjamin Diokno said that the Philippines has “more than optimal” gold and will start actively trading it. A move that makes one think that the Philippines was wallowing in a river of gold bars and that gold was simply a commodity. However, a new video released by the Banko Sentral ng Pilipinas (BSP) in their Facebook page seems to regard gold much better and even seems to endorse it.

In the video, the Banko Sentral ng Pilipinas calls gold a 'matatag na uri ng investment' or a stable investment. They also acknowledge the value of gold throughout history and calls the precious metal a 'physical na lagakan ng yaman' or a tangible storage of wealth.

The Philippines is a gold-producing country and in 2016 was ranked fifth top gold producer in Asia. But the video reveals that beginning in 2011, when a 7% tax was imposed on gold miners, the BSP was no longer able to accumulate gold as gold miners opted to sell their gold in the black market. However, in 2019, the BSP removed the tax and was able to purchase gold again.

Talking about the precious metal in glowing terms, is the BSP now promoting gold or is the video simply an announcement of ramping up their gold purchase program? 

Here is my translation of the video above in English:

Gold has been valuable since the dawn of time and today it is considered a stable form of investment. Gold is normally purchased by governments, central banks, financial institutions, and the private sector. It serves as a tangible store of wealth. The Banko Sentral ng Pilipinas or BSP purchases gold. BSP has a mandate to buy gold. Under Republic Act 7076, gold that comes from small-scale miners in the country should be sold to the central bank. Meanwhile, under Republic Act 7653 that created the BSP, gold can be a part of our Gross International Reserve.

Is gold a safe and stable investment?

Gold meets the criteria needed to become part of our reserves. Because of this, the BSP treats gold as a permanent part of our Reserve Assets Portfolio. 

Gold is a safe investment. It is not any government's liability. It does not get old, rot, and it cannot be destroyed throughout time. 

Gold can be considered a liquid asset that can be used at any time it is needed. It is also used widely in world trade.

Gold offers good protection in uncertain times. This was proven during the Global Financial Crisis in 2008. From 2008 to 2012, the price of gold almost doubled. This shows that whenever there is turmoil in the financial markets, the price of gold goes up. 

Gold is an important element that lowers the volatility or risk in our Reserve Portfolio.

The BSP is able to accumulate gold from the local market because the Philippines is a country rich in gold. Whenever the demand for gold in the world market is down, the BSP is able to purchase gold from the local mines as part of our reserves.

What is the importance of BSP buying gold?

Aside from growing our reserves, this also helps in the problem of illegal smuggling of gold because this stops trading in the black market.

Since gold is bought by the BSP at the prevailing price in the world market, miners are assured of a fair rate. This also helps the community prosper as a whole.

Before 2011, the BSP was buying gold continuously. BSP is the only official buyer of gold for miners. However, when a 2% excise tax and a 5% creditable withholding tax was imposed on gold sold to the BSP, the amount of gold sold dwindled to the point of almost non existence. Miners were forced to sell in the black market that offers a higher rate. The gold tax was also the reason why there was an increase in incidence of smuggling gold outside of the country.

Through the passage of the Republic Act 11256 last 2019, registered small-scale miners and accredited gold traders that will sell gold to BSP will no longer pay taxes. Currently, the BSP actively trades gold to properly manage the country's International Reserves. By having the optimal amount of International Reserves, we are assured that the Philippines has a liquidity buffer to shield us against uncertainties in the world market.