Central bank ponders controversial halt on gold

The State Bank of Vietnam (SBV) is considering an end to conversions of capital mobilized in gold into Vietnam dong as well as restricting mobilization and lending in gold because of latent risks. The plan has sparked arguments.

Nguyen Ngoc Tam, Deputy General Director of Nam A Bank claims that if SBV does not allow mobilization and lending in gold, this will influence bank operations and profits, but the impact will not be enormous.

Tam advocates measures to control mobilization and lending in gold by commercial banks.

“The Government’s principle is that the dong is the only parity object used in goods exchange. If so, the demand for borrowing gold to trade or purchase will gradually disappear. And once there is no demand for borrowing gold, banks will not find it necessary to mobilize gold,” Tam explained.

Other bankers disagree. Many observe that if SBV halts these practices, Vietnam will ignore a big volume of capital that can be mobilized from the public.

“A large volume of assets among the public will be frozen,” claimed a deputy general director of a large bank.

He added that the worry about the safety of gold transactions should not be the reason for prohibition. SBV has tools to ensure the safety of gold borrowing and lending transactions. It has the right to set regulations about the ratio of gold that banks can mobilize in their total assets, compulsory reserves, foreign currency positions and the ratio of gold that banks can lend on total assets, and so on.

“Such regulations make gold borrowing and lending healthy and safe,” he asserted.

He argued that SBV needs to find measures that allow control over the gold market instead of prohibiting all gold transactions because of management issues.

Vietnamese people typically keep assets in gold and many habitually make their payments in gold as well. According to Huynh Trung Khanh, Member of the World Gold Council and Deputy Chair of the Vietnam Gold Business Council, at least 500 tons of gold are hidden under beds throughout Vietnam.

“500 tons of gold is equal to $20 billion, a huge sum of capital. If Vietnam can use that capital, it will be able to reduce the sum of foreign currencies it must borrow,” Khanh calculated.

Nevertheless, SBV has every reason to consider a halt to mobilizing capital and lending in gold. Such practices created the ups and downs in the gold market last year and many enterprises were teetered on the verge of bankruptcy.

Will the administrative order be obeyed in reality if it comes contrary to market demand? Vo Tri Thanh, Deputy Director of the Central Institute of Economic Management (CIEM), pointed out that the Government has prohibited foreign currency transactions in Vietnam since 1994, but in fact, such transactions are common.

Thanh said that any policy has good and bad aspects, and SBV needs to weigh the pros and cons before making a decision.

Thoi bao Kinh te Saigon

Tags: vietnam gold, Vietnam gold market, Vietnam gold prices