The State Bank of Việt Nam has said no to the Việt Nam Gold Trading Association (VGTA)’s proposal to mobilise privately owned gold.
An anonymous SBV official told Sàigon Times Daily that it would be very risky in terms of the price movements it might cause, claiming there has been no precedent by any government in the world in this regard.One of the VGTA’s most important suggestions was that the central bank and Ministry of Finance should soon set up a national transaction floor for physical goldSince the Government issued Decree 24 on management of gold trading in 2012, which enables the central bank to directly intervene in the local gold market, the market has become very stable while the number of gold traders decreased sharply from 12,000 units then to 38 now.Under the decree, bullion trading is only permitted by gold firms and credit institutions licensed by the central bank.
To be licensed, however, a firm must have chartered capital of at least VNĐ100 billion (US$4.8 million), paid VNĐ500 million or more in taxes for the last two years and have branches in at least three provinces or centrally administered cities.As for credit institutions, they must have chartered capital of at least VNĐ3 trillion ($144 million) and be based in at least five provinces or cities.These rules meant more than 10,000 small gold traders have shut down.In mid-2011 the central bank decided banks can no longer accept deposits of or lend in gold to prevent volatility in the market and strengthen the đồng.But it has just added to the tonnes of idle gold lying with individuals in a country where using gold as a means of payment and a speculative asset is common.
According to the VGTA, annual demand for gold bullion runs into dozens of tonnes. With the country mainly importing and exporting a little, increasing volumes are ending up in people’s hands.The VGTA estimates it at no less than 500 tonnes, equivalent to $20 billion at current prices (VNĐ34.2 million per tael).Meanwhile, the economy is in great need of funds for socio-economic development and this is expected to increase from next year when the country may not be eligible for official development assistance because of its rising income and ability to raise funds in the international market, according to the finance ministry.The VGTA said mobilising the idle gold would help the country meet this demand.But it said an official gold trading floor would need to be set up to ensure the mobilisation could be done effectively.
It was also necessary because the central bank’s ban on gold imports for non-licensed gold jewellers – the requirements to get jeweller’s licence are also steep — forces them to buy gold in the black market, which sustains smuggling.It would also enable the central bank to monitor gold transactions in the market.
The VGTA also called on the central bank to expand the bullion trading network to remote and rural areas to meet people’s legitimate needs and allow businesses to import gold for making jewellery for domestic use and exports. Many analysts agree with the VGTA’s proposals, pointing out that Việt Nam has in recent years issued international bonds several times to raise funds at high coupon rates.
If the Government can mobilise idle gold, it can use it as collateral to borrow at lower rates.The Government has urged the central bank several times to mobilise idle gold, but in vain.But other analysts have rejected the proposal saying it is not quite necessary since many people already used their gold to invest into the economy in recent years since the central bank announced policies that made speculation in gold less attractive.As a result there have been no imports of the metal in the last two years, while before 2014 the country imported 30-50 tonnes of gold a year.
Meanwhile, the country’s current gold bullion demand is from 10 to 15 tonnes per year.This means that people’s gold savings and their normal transaction can meet the market demand.
Source: Vietnam News