Turkey to introduce sovereign gold bonds, gold lease certificates

Deputy Prime Minister Mehmet Şimşek announced that they will add two new secure investment tools to the financial system; namely, gold-denominated bonds (sovereign gold bonds) and lease certificates (sukuk) denominated in gold in order to bring under-the-mattress gold into the economy."With this important step that will further deepen the financial system, our citizens will get additional income from the idle gold they stockpile under their mattress, while the savings will increase and the economy will gain momentum," Şimşek told the Anadolu Agency (AA), adding that gold is regarded as s "safe haven" in Turkey and is seen as a traditional investment tool.

Şimşek pointed out that the Central Bank of the Republic of Turkey (CBRT) has paved the way for some of the required reserves of the banks deposited in the Turkish lira to be kept as gold, noting that a fair amount of gold citizens kept "under the mattress" has been brought into the economy with the said regulation, adding that while gold accounts are offered by banks, volume has not reached the desired level.

Highlighting that significant amounts of gold are not financially used but are deposited "under the mattress" in Turkey, Şimşek said that limited investment tools as well as various psychological factors constitute an obstacle for bringing that gold into the economy.

"In the gold-denominated bond, which will be issued in return for the gold to be collected from investors, a certain amount of yield will be paid to the investor in the Turkish lira in the interim period and the said yield will be indexed to the gold prices," Şimşek said, underlining that as a result of the new move, citizens will benefit from the change in the gold prices and will receive the return that the Treasury offers.

Gold-denominated lease certificates for interest-sensitive investors

Recalling that the Ministry launched the issuance of lease certificates for interest-sensitive investors in 2012, Şimşek said that they have developed this model, which is accepted by both domestic and foreign investors, for the interest-sensitive citizens to use the gold under the mattress.

Noting that lease certificates denominated in gold will also be issued, Şimşek stated that the same structure will be preserved in these certificates, as well.

As Şimşek informs, citizens will bring their 22- and 24-karat gold, such as 22-karat rings, gold coins and gold per gram, to the intermediary bank to be determined by the Treasury in the weekly demand collection period.

Gold will be collected within the framework of criteria to be determined by the Treasury, and in the first stage of the process, a deposit account will be opened on behalf of citizens in the bank. The collected gold will be turned into gold bars, and sovereign gold bonds, or gold-lease certificates, will be transferred to the investment accounts to be opened in the bank at the end of this process in accordance with the citizen's request.

The latest initiative of Turkey's Treasury aims to diversify financial instruments by further deepening the financial market as well as encouraging the savings rate. Yet, as the measures are relatively new, the length of maturity and the tenor of sovereign bonds has yet to be shared with the public. However, the measures have emerged as an encouraging halal investment tools for investors.

Lease Certificates are securities that are issued by the undersecretariat of the Treasury Asset Leasing Company (UTALC) in order to finance the assets acquired or leased. These certificates grant the signer with entitlements to revenues generated from such assets in proportion to their shares.