More quotas for gold import grated, bigger worry raised

The fact that the State Bank of Vietnam has continuously granted quotas for importing gold to ease the domestic demand has raised a worry that this will put a hard pressure on the dong/dollar exchange rate.

Gold companies said last week that the gold supply has nearly depleted, while the demand remains very high, even though the consignments of 4 tons of import gold have arrived.

The high demand and limited supply are the two main reasons behind the domestic gold price skyrocketing to the levels which are much higher than the world’s prices.

On September 24, the gold price in the domestic market was higher by 4 million dong per tael than the world’s price. Meanwhile, in a speech delivered in late August, the Governor of the State Bank of Vietnam said that the ideal gap between the domestic and the world’s price is 400,000 dong per tael, and any bigger gaps may encourage illegal imports and speculation.

Therefore, the State Bank of Vietnam, once again, released a message on September 26 that it will allow to import more gold to stabilize the market.

Allowing more imports is the solution the central bank usually uses to ease the domestic thirst which is believed to force the prices down. The solution really brought the desired effects in the past: people stopped rushing to purchase gold when they heard that imports were coming which would ease the demand for gold and force the prices down.

However, things seem to be quite different now and people expect long term strategy rather than the temporary solution which just can help get a fire under control.

Besides, analysts have warned that any medicine could bring side effects. When more gold is imported to Vietnam, this means that the demand for foreign currencies would increase, which would put a high pressure on the dong/dollar exchange rate.

If the State Bank wants to stabilize the exchange rate to fulfill the commitments of devaluating the dong no more than one percent by the end of the year, it will have to sell foreign currencies to the market. If so, the move would mean the decreases in the foreign currency reserves.

The big problem in allowing to import gold is that foreign currencies are used to import gold which satisfies the speculation and the gold hoarding by people, while they cannot be put into the production and business. An economist has called this a “worrying foreign currency bleeding.”

As such, there are two choices: either to allow to import gold to stabilize the domestic gold market and face the exchange rate risks, or “ignore” the performance of the gold market and try to stabilize the exchange rate; which is an important factor to encourage production and business.

When asked about whether to allow to import more gold now, Truong Van Phuoc, General Director of Eximbank, said that it is advisable to grant quotas for gold imports, and it is necessary to import gold right now.

Phuoc stressed that the thing that needs to be done now is to stabilize the market. Meanwhile, he cannot see any risks relating to the exchange rate.

“We should consider gold as a kind of foreign currencies which is a part of the foreign currency reserves. The foreign currencies to be used to import gold will not disappear,” Phuoc said.

“The thing we need to do is to turn this into a resource to serve the national economy,” he added.

Phuoc also stressed that if the domestic demand cannot be satisfied by imports, this will encourage illegal imports, which will make the “foreign currency bleeding” become more serious.

A banker has said that the foreign currency positions of commercial banks are really good.

Source: TBKTVN

Tags: vietnam gold, Vietnam gold imports, Vietnam gold market