Pakistan weighs creation of national gold bank

As Pakistan struggles to curb illicit gold trading and strengthen a fragmented precious-metals market, economic policymakers are weighing a proposal to establish the country’s first-ever national gold bank, a move aimed at bringing transparency, regulating imports, and tapping billions of dollars’ worth of idle household gold.

Officials say the proposed institution would help formalize a sector long dominated by informal networks, where an estimated 90,000 kilograms of gold enter Pakistan annually through undocumented channels, distorting prices and eroding tax revenues.

Smuggling, under-invoicing, and unregulated refining have for decades fueled a parallel market that formal jewelers and banks struggle to compete with.

Learning from regional models

The proposal draws heavily from international examples where governments have successfully modernized gold markets through formal banking channels, strict hallmarking laws, and digital traceability systems, according to a report of Competition Commission of Pakistan..

In Türkiye, the modern gold market is led by Koza Gold and the Istanbul Gold Refinery, yet the centuries-old Grand Bazaar still handles the bulk of retail trade. Lower compliance costs allow informal dealers to offer better prices than banks, creating a dual market structure. Despite tighter import rules, Turkish authorities estimate that nearly 50 tons of gold were smuggled into the country in a single year, highlighting persistent enforcement gaps.

To counter illegal trade, Türkiye expanded gold deposit accounts managed by its central bank, mobilizing household gold and improving liquidity.

Separately, digital investment platforms and blockchain-based trading tools are increasingly popular among younger investors, part of a broader shift toward financial formalization.

India offers another prominent model. Its gold sector is governed by strict regulations: 35 authorized banks handle imports, and the Reserve Bank of India has allowed gold-backed loans and futures trading.

Retail giants such as Tanishq have expanded rapidly, while digital platforms like Paytm Gold and MMTC-PAMP now enable micro-investments as small as ₹1.

India’s hallmarking regime — mandatory since 2021 — has significantly reduced purity fraud and boosted jewelry exports.

Pakistan’s system

Pakistan’s gold market remains far less structured. Only three assay centers are certified by the Pakistan Standards and Quality Control Authority, and adulteration is common. Limited refining capacity leaves the country reliant on imported refined gold, while most artisans work informally without contracts or fair wages.

Regulatory loopholes enable under-invoicing and tax evasion, allowing the grey market to thrive.

“A gold bank could be the first real attempt to dismantle the cartel-like structure of Pakistan’s informal gold trade,” said a Karachi-based commodities analyst. “But without enforcement and technology, the underground market will simply adapt and continue.”

Blueprint for a gold bank

Under the proposal being studied by policymakers, the gold bank would:

• Handle gold imports directly, restricting informal channels.
• Introduce gold savings and deposit accounts, similar to Türkiye’s model.
• Integrate blockchain-based traceability, modeled on the UAE’s DMCC Tradeflow system, to reduce smuggling and comply with FATF standards.
• Support nationwide hallmarking, ensuring purity and consumer protection.
• Offer lending products backed by gold, reducing reliance on imported bullion.
• Serve as a central repository for mobilizing household gold stored privately “under the pillow”.

Economists argue that unlocking even a fraction of household gold — estimated at several thousand tons — could reduce pressure on foreign exchange reserves, lower import demand, and help stabilize the rupee.

Market implications

Gold prices in Pakistan are heavily influenced by global benchmarks, the exchange rate, interest rates, inflation, and investor sentiment. Research shows that gold acts as a preferred inflation hedge in Pakistan, particularly given limited stock-market participation.

“The goal is not just to curb smuggling,” said a financial analyst. “A gold bank could reshape monetary policy by harnessing idle household gold, improving liquidity and reducing dollar demand.”

A sector at a crossroads

While the federal government has not yet formally announced the creation of a gold bank, discussions have accelerated amid rising smuggling and worsening exchange-rate pressures.

Industry insiders say Pakistan’s gold sector now stands at a critical turning point. With regional peers advancing digital gold investment, strengthening hallmarking, and formalizing imports, Pakistan risks falling further behind without structural reform.

If approved, the gold bank could become one of the most significant financial-sector reforms in decades, a move that supporters argue is essential for stabilizing Pakistan’s volatile gold market and curbing a vast illicit trade that continues to undermine the country’s economy.