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PRESS
RELEASE
London
17 December 1997
Unnecessary Regulation
is Damaging the Gold Trade
Greater liberalisation would increase consumption,
claims research study.
Removal of unnecessary and discriminatory barriers
to trade worldwide would lead to an upsurge in the trading and consumption
of gold and increased revenue for many governments, it is claimed
in a research study published in London.
The research study, undertaken by Graham Bannock and colleagues
at Bannock Consulting Limited at the behest of the World Gold Council,
shows that government regulations and discriminatory taxation distort
the market and limit the gold trade. Even in Britain and other EU
countries petty and unnecessary regulations discriminate against
gold in relation to other investment instruments.
The report, entitled An overview of regulatory barriers to the
world gold trade, indicates that a reduction in these regulatory
impediments would lead to greatly increased trade and use of gold
and to significant economic and financial benefits to many countries.
It is claimed that there are only two genuinely free gold markets
in the world, namely Dubai and Hong Kong, and every other country
imposes either fiscal or legal restrictions on the gold trade.
The reason for these regulatory burdens, the report says, is that
gold is regarded as being ‘different’, precisely because
it is universally demanded for its prime uses as a store of value
and adornment. Gold is not just another commodity.
The study shows that most countries have import duties on gold
jewellery and also levy consumption taxes, often at a higher ‘luxury’
rate, so that taxes are being paid on taxes. Some countries also
levy consumption taxes on investment gold bars and coins and thereby
discriminate against gold as an investment instrument. Italy, Spain
and the UK, for example, impose VAT on investment gold while exempting
other savings vehicles.
It is also fairly common for individuals to be banned from holding
gold bullion for investment, even in developed and liberalised economies,
and in some countries even financial institutions are still severely
regulated or are even banned from dealing in gold. In the UK, insurance
funds can hold gold but cannot include its value for the purposes
of mandatory solvency calculations.
"The motives for taxation and regulation of gold have, assay
apart, little to do with the furtherance or protection of consumer
interests," Mr Bannock said.
"Governments and regulatory authorities seem to have a special
reluctance to deregulate gold even ‘though general economic
liberalisation is now in vogue and the benefits to the global economy
of freer trade and payments have been amply demonstrated.
"Discriminatory taxation and regulation of gold markets is
costly, unnecessary and outmoded," he says. The continued imposition
of these burdens sends the wrong signals to foreign investors, drives
economic activity underground and deprives governments of revenue.
The study goes on to show that if gold regulations in China, one
of the most heavily regulated countries, were reduced to the levels
of India, which is still relatively high even after some liberalisation
in recent years, and if gold were consumed in China at the same
level as India per GDP per capita, China could earn $500 million
a year in import duties and gold demand would increase by some 830
tonnes annually.
"Fears about the consequences of gold deregulation are misplaced.
The scope for further deregulation and the benefits that will flow
from it seem to be potentially large for the gold industry and significant
for public finances and national economies in very many countries,"
said Mr Bannock.
"We believe that as the benefits of gold deregulation become
more widely understood, and the benign consequences of the modest
attempts already made in this field are more closely studied, more
governments will be willing to embark upon and accelerate the deregulation
process."
Contacts:
Mr Robert Pringle, Director, Centre for Public Policy Studies,
WGC
Tel. +44 (0) 171 903 5171
E-mail: Robert.Pringle@wgclon.gold.org
Mr Graham Bannock, Chairman, Bannock Consulting
Tel. + 44 (0) 171 723 1845
Mr Keith Irons, Bankside Consultants
Tel. + 44 (0) 171 220 7477
E-mail: keith.bankside@dial.pipex.com
Note:
The World Gold Council is an international organisation formed
and funded by leading gold mining companies from around the world
to increase the demand for gold. The countries served by the Council
account for approximately 80% of global gold demand.
Bannock Consulting is a UK-based independent private company which
offers management, economic and financial consultancy services to
business and government clients worldwide. It has particular expertise
in economic policy and planning, and in public finance and public
administration reform.
Copies of An overview of regulatory barriers to the world gold
trade are available from Wilma Tulloch at the World Gold Council:
Tel. +44 (0) 171 930 5171
wilma.tulloch@wgclon.gold.org
See also on this site: Catalogue of Research Studies
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